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Pound 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, Dustin Pound, 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 $ 2,450 Total fixed costs Total operating costs Variable cost per garment Fixed cost per garment $ 2.00 Average cost per garment

Pound 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, Dustin Pound, 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 $ 2,450 Total fixed costs Total operating costs Variable cost per garment Fixed cost per garment $ 2.00 Average cost per garment

FINANCIAL ACCOUNTING
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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Pound 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, Dustin Pound, 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 $ 2,450 Total fixed costs Total operating costs Variable cost per garment 2.00 Fixed cost per garment Average cost per garment %24
Transcribed Image Text:Pound 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, Dustin Pound, 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 $ 2,450 Total fixed costs Total operating costs Variable cost per garment 2.00 Fixed cost per garment Average cost per garment %24
Expert Solution
Step 1

First, calculate the variable cost per garment.

  • The variable unit cost remains constant for each output, only the total variable costs change.
  • Also, the total fixed costs do not change with output.

 

Given, For 3,500 production level:

The variable cost per garment
= Total variable costs/ Total number of garments
= 2,450 / 3500
= $0.7

Total fixed costs
= Fixed cost per garment* Total number of garments
= 3500*2.00
= $7,000

Total Operating Cost
= Fixed + Variable Costs
= 7,000 + 2,450
= 9,450

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