Question

V Boutique is a fashion house that designs, manufactures, and sells evening gowns. Their lowest-selling design is a vibrant green strapless gown in Dupioni silk. V Boutique is considering lowering the selling price of the gown to stimulate demand. However, before lowering the price, they must evaluate the total costs associated with the gown.
. Fabric and materials - $62/gown
. Labor to construct the gown - $40/gown
. Equipment cost for these gowns (steamer and sewing machines) $3,000
V Boutique anticipates selling 500 gowns after lowering the selling price. Assuming their projection is accurate, what is the total average cost they will incur per gown?

Answer 1

Answer:

V. Boutique

Assuming their projection of 500 gowns is accurate, the total average cost they will incur per gown is:

= $108.

Explanation:

a) Data and Calculations:

Unit variable costs:

Fabric and materials per gown =                       $62

Labor cost  per gown to construct the gown = $40

Total unit variable costs  per gown =               $102

Unit fixed costs:

Equipment cost  = $3,000/500                           $6

Total average costs per gown =                      $108

b) The average cost per gown equals the unit costs (variable costs per unit and the fixed costs per unit).  V. Boutique incurs a total equipment cost of $3,000 for the 500 gowns.  This means that each gown consumes $6 ($3,000/500) in equipment costs.