Petrov Drycleaners has capacity to clean up to 7,500 garments per month. Complet

Question

Petrov Drycleaners has capacity to clean up to 7,500 garments per month. Complete the schedule below for the three volumes shown. Why does the average cost per garment change? Suppose the owner, Doug Petrov, erroneously uses the average cost per unit at full capacity to predict total costs at a volume of 4,500 garments. Would he overestimate or underestimate his total costs? By how much? 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.)

Explanation / Answer

Statement showing computations Particulars 4,500 Garments 6,000 Garments 7,500 Garments Total Variable Costs                      4,050.00                5,400.00                  6,750.00 Total Fixed Costs                    10,800.00             10,800.00               10,800.00 Total Operating Costs                    14,850.00             16,200.00               17,550.00 Variable Cost per Garment                              0.90                        0.90                          0.90 Fixed Cost per Garment                              2.40                        1.80                          1.44 Average Cost per Garment                              3.30                        2.70                          2.34 2) Average Cost decreases as the production increase because Fixed cost remain same for all levels of output.Thus per unit cost will fall. 3) If we use avergae cost for 7,500units which is 2.34per garment Then Fixed cost at 4500 would be = 4500*1.44                      6,480.00 Fixed costs would be underestimated as Fixed costs should be 10,800 Also total costs would be =4500*.90 + 6480                    10,530.00

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