EXERCISES Group A E6-20A Forecast costs at different volumes (Learning Objectives 1 & 2) Farnsworth Drycleaners has capacity to clean up to 7,500 garments per month. Requirements 1. Complete the following schedule for the three volumes shown. 4,500 Garments 6,000 Garments Total variable costs 7,500 Garments $4,200 Total fixed costs Total operating costs Variable cost per garment Fixed cost per garment $2.40 Average cost per garment 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 overesti- mate or underestimate his total costs? By how much? E6-21A Prepare income statement in two formats (Learning Objective 6) Refer to the Farnsworth Drycleaners in E6-20A. Assume that Farnsworth charges custom- ers $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 tradi- tional format; then prepare Farnsworth's contribution margin income statement. E6-22A Use unit cost data to forecast total costs (Learning Objective 2) Rollins Mailbox produces decorative mailboxes. The company's average cost per unit is $23.43 when it produces 1,400 mailboxes. Requirements 1. What is the total cost of producing 1,400 mailboxes? 2. If $20,202 of the total costs is fixed, what is the variable cost of producing each mailbox? 3. Write Rollins Mailbox's cost equation. 4. If the plant manager uses the average cost per unit to predict total costs, what would the forecast be for 1,500 mailboxes? 5. If the plant manager uses the cost equation to predict total costs, what would the forecast be for 1,500 mailboxes? 6. What is the dollar difference between your answers to questions 4 and 5? Which ap- proach to forecasting costs is appropriate? Why? E6-23A Use a cost equation to forecast total costs (Learning Objective 2) The Carrollton Buffet offers an all-you-can-eat buffet meal for $30 per person. The restaurant employs ten salaried employees. Rent for the building, employee salaries, and other fixed costs for the restaurant are $143,000 per month when the restaurant serves meals to up to 14,000 guests in that month. If the restaurant were to serve more than 14,000 guests in any given month, it would need to hire two additional servers and two additional kitchen staff for an additional fixed cost of $22,000 per month. The variable cost of food is $15 per guest