Refer to the Farnsworth Drycleaners in E6-23A. Assume that Farnsworth charges customers \($10\) per garment for dry cleaning. Prepare Farnsworth’s projected income statement if 4,260 garments are cleaned in July. First, prepare the income statement using the traditional format; then prepare Farnsworth’s contribution margin income statement.

Data From E6-23A:-

Farnsworth Drycleaners has capacity to clean up to 7,500 garments per month.

Requirements:

1. Complete the following schedule for the three volumes shown.

2. Why does the average cost per garment change?
3. Suppose the owner, Dustin Farnsworth, erroneously uses the average cost per unit at full capacity to predict total costs at a volume of 4,500 garments. Would he overestimate or underestimate his total costs? By how much?

Transcribed Image Text:

4,500 Garments Total variable costs 6,000 Garments $4,200 7,500 Garments Total fixed costs Total operating costs Variable cost per garment Fixed cost per garment Average cost per garment $2.40