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