I have no idea how to slove this please help. Pierce Drycleaners has capacity to
ID: 2587474 • Letter: I
Question
I have no idea how to slove this please help.
Pierce Drycleaners has capacity to clean up to
6,000
garments per month.
Requirements
1.
Complete the schedule below for the three volumes shown.
2.
Why does the average cost per garment change?
3.
DaleDale
PiercePierce,
3 comma 0003,000
hehe
hishis
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.)
3,000
4,500
6,000
Garments
Garments
Garments
Total variable costs
$4,050
Total fixed costs
Total operating costs
Variable cost per garment
Fixed cost per garment
$2.20
Average cost per garment
1.
Complete the schedule below for the three volumes shown.
2.
Why does the average cost per garment change?
3.
Suppose the owner,DaleDale
PiercePierce,
erroneously uses the average cost per unit at full capacity to predict total costs at a volume of3 comma 0003,000
garments. Wouldhehe
overestimate or underestimatehishis
total costs? By how much?Explanation / Answer
3,000 Garments
4,500 Garments
6,000 garments
Total Variable Cost(@0.9)
2,700
4,050
5,400
Total Fixed Cost
9,900
9,900
9,900
Total Operating Cost
12,600
13,950
15,300
Variable cost per unit
0.9
0.9
0.9
Fixed cost per unit
3.3
2.2
1.65
Average Cost per unit
4.2
3.1
2.55
Total Variable Cost at 4500 units = $4,050
Variable cost = Cost per unit * No. of Units
Variable cost per unit = $0.9 per unit ($4050 / 4500 units)
Variable cost will change with the change in units
Fixed Cost per garment at 4500 units = $2.2
Total Fixed Cost = $9,900 ($2.2 * 4500 units)
Fixed Cost will be same irrespective of the no. of units produced.
Variable cost per unit = Total Variable cost / No. of units
Fixed cost per unit = Total Fixed cost / No. of units
Average Cost per unit = Variable cost per unit + Fixed cost per unit
2.
Average cost is the cost of producing one unit. It is directly related to the no. of units. I.e. if the no. of units will increase then the average cost will decrease and Vice-versa.
This is because when the production increases the company will only have to incur only variable cost as fixed cost will remain the same this will decrease the average cost per unit.
As after increase in production the fixed cost will be shared by more units then before thus resulting in decrease in overall cost of the product.
3.
If the owner uses Average cost of Full capacity to find the cost of 3000 units.
Cost of 3000 units at Average cost of full capacity = Average cost of full capacity * 3000 Units
= $2.55 * 3000 units
Cost of 3000 units at Average cost of full capacity = $7,650
It is underestimated by $4,950 (12,600 – 7,650)
3,000 Garments
4,500 Garments
6,000 garments
Total Variable Cost(@0.9)
2,700
4,050
5,400
Total Fixed Cost
9,900
9,900
9,900
Total Operating Cost
12,600
13,950
15,300
Variable cost per unit
0.9
0.9
0.9
Fixed cost per unit
3.3
2.2
1.65
Average Cost per unit
4.2
3.1
2.55