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Cost Estimation: Additional Practice CD's R Us used the following values of a and b for preparing its flexible budget for selling and administrative expense
Cost Estimation: Additional Practice CD's R Us used the following values of a and b for preparing its flexible budget for selling and administrative expense in the past years: y=$3,500+$1.85x, where x is the number of compact disks sold. The company is expected to expand into a new relevant range in the coming year. Accordingly, fixed costs are expected to remain at $3,500 for volume under 6,000 units; at a volume equal to or exceeding 6,000 units, fixed costs are expected to increase to $5,200. Variable costs will remain at $1.85 per unit of volume at or below 7,000 units. Above 7,000 units, variable costs are expected to decline to $1.75 per unit. Required: a. What specific cost is CD's R Us trying to estimate? b. Write a cost formula for each of the three relevant ranges. Will IOOK different each tim (1) 7,000 units c. Prepare a flexible budget for the new relevant range: 5,000,7,000, and 9,000 units of sales. d. Calculate the total cost at each level of sales
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