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Pastore Drycleaners Has Capacity To Clean Up

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Kailash Kumar

Princeton Drycleaners has the capacity to clean 5,000 garments per month. The document shows the total variable costs, total fixed costs, and total operating costs for volumes of 5,000, 6,500, and 8,000 garments. The variable cost per garment is $0.85 and remains constant while the fixed cost per garment decreases as volume increases. The owner would underestimate the total costs if he used the average cost per garment at full capacity to predict costs at lower volumes.

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Pastore Drycleaners Has Capacity To Clean Up

Uploaded by

Kailash Kumar
120 views4 pages
Princeton Drycleaners has the capacity to clean 5,000 garments per month. The document shows the total variable costs, total fixed costs, and total operating costs for volumes of 5,000, 6,500, and 8,000 garments. The variable cost per garment is $0.85 and remains constant while the fixed cost per garment decreases as volume increases. The owner would underestimate the total costs if he used the average cost per garment at full capacity to predict costs at lower volumes.

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Pastore Drycleaners Has Capacity to Clean Up

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Princeton Drycleaners has the capacity to clean 5,000 garments per month. The document shows the total variable costs, total fixed costs, and total operating costs for volumes of 5,000, 6,500, and 8,000 garments. The variable cost per garment is $0.85 and remains constant while the fixed cost per garment decreases as volume increases. The owner would underestimate the total costs if he used the average cost per garment at full capacity to predict costs at lower volumes.

Copyright:

© All Rights Reserved
Download as XLSX, PDF, TXT or read online from Scribd
Download as xlsx, pdf, or txt
120 views4 pages

Pastore Drycleaners Has Capacity To Clean Up

Uploaded by

Kailash Kumar
Princeton Drycleaners has the capacity to clean 5,000 garments per month. The document shows the total variable costs, total fixed costs, and total operating costs for volumes of 5,000, 6,500, and 8,000 garments. The variable cost per garment is $0.85 and remains constant while the fixed cost per garment decreases as volume increases. The owner would underestimate the total costs if he used the average cost per garment at full capacity to predict costs at lower volumes.

Copyright:

© All Rights Reserved
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You are on page 1/ 4

Princeton Drycleaners has capacity to clean up to 5,000 garments per month.

Req 1 - Schedule for the three volumes shown

5,000 6,500 8,000


Garments Garments Garments
Total Variable Costs $ 4,250 $ 5,525 $ 6,800
Total Fixed Costs $ 15,600 $ 15,600 $ 15,600
Total Operating Costs $ 19,850 $ 21,125 $ 22,400

Variable Cost per Garment $ 0.85 $ 0.85 $ 0.85


Fixed Cost per Garment $ 3.12 $ 2.40 $ 1.95
Average Cost per Garment $ 3.97 $ 3.25 $ 2.80

Total Variable Cost / Volume = Variable Cost per Garment

$ 5,525 6,500 0.85

Fixed Cost per Garment x Volume = Total Fixed Costs

$ 2.40 6,500 $ 15,600

Req 2 - Average cost per garment change?

The average cost per garment changes as volume changes, due to the fixed component of the dry
cleaner’s costs. The fixed cost per unit decreases as volume increases, while the variable cost per unit
remains constant.
Req-3
The Owner, erroneously uses the average cost per unit at full capacity to predict total costs at a volume
Would he over or underestimate his total cost? By how much?

Avg. Cost per Garment x Volume = Total Predicted Costs

$ 2.80 5,000 $ 14,000

The difference between the predicted cost of $ 14,000 and the actual cost at 5,000 is
Underestimated
5,000 garments

$ 19,850 is $ 5,850
Princeton Drycleaners has capacity to clean up to 5,000 garments per month.

Req 1 - Schedule for the three volumes shown

2,000 3,500 5,000


Garments Garments Garments
Total Variable Costs $ 1,200 $ 2,100 $ 3,000
Total Fixed Costs $ 7,000 $ 7,000 $ 7,000
Total Operating Costs $ 8,200 $ 9,100 $ 10,000

Variable Cost per Garment $ 0.60 $ 0.60 $ 0.60


Fixed Cost per Garment $ 3.50 $ 2.00 $ 1.40
Average Cost per Garment $ 4.10 $ 2.60 $ 2.00

Total Variable Cost / Volume = Variable Cost per Garment

$ 2,100 3,500 0.6

Fixed Cost per Garment x Volume = Total Fixed Costs

$ 2.00 3,500 $ 7,000

Req 2 - Average cost per garment change?

The Owner, erroneously uses the average cost per unit at full capacity to predict total costs at a vol 2,000
Would he over or underestimate his total cost? By how much?

Avg. Cost per Garment x Volume = Total Predicted Costs

$ 2.00 2,000 $ 4,000

The difference from the amount above and the total operating costs calculated in the schedule at the volume of
Would he over or underestimate his total cost? By how much?

The difference between the predicted cost of $ 4,000 and the actual cost at 2,000 is $ 8,200
Underestimated or Overestimated
garments

he volume of 3,000 garments.

is $ 4,200

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