Perreth 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, David Perreth, erroneously uses the average cost per unit at 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 3,500 Garments Garments Total variable costs Total fixed costs Total operating costs Variable cost per garment Fixed cost per garment Average cost per garment $ $ 1,750 2.00 C 5,000 Garments

Perreth 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, David Perreth, erroneously uses the average cost per unit at 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 3,500 Garments Garments Total variable costs Total fixed costs Total operating costs Variable cost per garment Fixed cost per garment Average cost per garment $ $ 1,750 2.00 C 5,000 Garments

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Inventory Accounting

Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

Question

Perreth 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, David Perreth, erroneously uses the average cost per unit at 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
3,500
5,000
Garments
Garments
Garments
Total variable costs
Total fixed costs
Total operating costs
Variable cost per garment
Fixed cost per garment
Average cost per garment
$
1,750
2.00

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Step 1: Introduce to variable cost and fixed costs

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Step 2: Working for variable cost per garment and total fixed cost

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Step 3: Working for total operating costs and average cost per garment

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Step 4: Working for Understatement of Operating costs using average cost per unit of full capacity

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