Why does the 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 increases.

Question

Gustavo

Business

26 August, 19:45

Why does the 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 increases.

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Louis Burch · Answer 1

In unitary terms, the average cost varies because the fixed costs are divided by higher or fewer units.

Explanation:

The average cost per unit varies according to production levels. First, we need to clarify that fixed costs remain constant in the relevant range. Between levels of production, the total fixed cost don't change.

In unitary terms, the average cost varies because the fixed costs are divided by higher or fewer units. Therefore, a fixed cost of $100 in 100 units is $1 per unit; but, in 50 units is $2 per unit. In unitary terms, variable cost remains the same.

Finally, in total terms, fixed costs (in the relevant range) remains constant and total variable cost varies with production. In unitary terms, variable cost remains constant and fixed cost varies.