Question

Pastore Drycleaners has capacity to clean up to 5,000 garments per month Requirements 1. Complete the schedule below for the three volumes shown 2. Why does the average cost per garment change? 3. Suppose the owner, Doug Pastore, erroneously uses the average cost per unit af full capacity to predict total costs at a volume of 2,000 garments Would he overestimate or underestimate his total costs? By how much? Requirement 1. Complete the following schedule for the three volumes shown (Round all unit costs to the nearest cent and all total costs to the nearest whole dollar) 2,000 Garments 3,600 Garments 5,000 Garments 3.150 Total variable costs Totalfixed costs Total operating costs Variable cost per garment Fixed cost per garment Average cost per garment Requirement 2. Why does the average cost per garment change? The average cost Der Garment changes as volume changes due to the component of the dry cleaner's costs. The Choose from any list or enter any number in the input fields and then continue to the next question y cost per unit decreases as

Answer 1

	2,000 Garments	3,500 Garments	5,000 Garments
Total variable cost	$1,800	$3,150	$4,500
Total fixed costs	$7,700	$7,700	$7,700
Total operating costs	$9,500	$10,850	$12,200
Variable cost per unit	$0.90	$0.90	$0.90
Fixed cost per unit	$3.85	$2.20	$1.54
Average cost per unit	$4.75	$3.10	$2.44

Variable cost per unit = Total variable cost / 3,500

= $3,150 / 3,500

= $0.90

Total fixed costs = Fixed cost per unit * units

= $2.20 * 3,500

= $7,700

2.

The average cost per garments changes as volume changes as due to the fixed component of the dry cleaner's costs. The fixed cost per unit decreases volume increases.

3.

Suppose Doug pastore, uses the average cost at full capacity i. e. $2.44 to predict total costs at a volume of 2,000 garments. He would underestimate his total costs by [($4.75 - $2.44) *2,000] $4,620.