Question:
At a sales volume of 32,000 units, CD Company's total fixed costs are $64,000 and total variable costs are $60,000. The relevant range is 30,000 to 55,000 units.
If CD Company were to sell 50,000 units, the total expected cost per unit (rounded to the nearest cent) would be?
Thanks for the previous answer. I'm still a bit confused on the relevant range.
Answers:
$3.20
If the definition in this case of fixed is the cost of the CDs and variable is overhead like rent, salaries, insurance etc.
If it's the reverse it's $3.16
Funny I actually do CD projects for companies. I believe in this case, the relevant range means that you can use the cost per unit from 30m-55m units. Under 30m or over 55m (m = 1,000) the cost would change. Under and the cost goes up on a per unit basis, over and the cost goes down.
Generally in a business like this where you're buying/selling widgets, the more you buy, the cheaper they are. That's demonstrated here. If you buy 32m they're $3.88. Raise the quantity to 50m and the cost/unit goes down to $3.20.
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