7. Phillip owns a commercial radio store, and sells and services small radios. H

Question

7. Phillip owns a commercial radio store, and sells and services small radios. He has good records on all of his equipment. He is in the process of buying a series of new radios of different capabilities. He has the following cost estimating relationship (CER) data to help him determine a fair price he should be prepared to pay: Price Paid Over the Number of Transistors Years for Lots of 100 in Each Radio $6,500 6 $7,000 7 $8,000 9 $9,000 11 $9,500 12 Based solely on the above CER data what do you think would be a fair price Phillip should expect to pay for a radio with 10 transistors? Explain the rationale for your answer.

Explanation / Answer

Variable cost per unit = Change in semi variable cost / Change in units

                                    = (7,000 – 6,500) / (7 – 6)

                                    = $500

Total variable cost for 6 transistors = (Variable cost per unit) × (Number of radios)

                                                = $500 × 6

                                                = $3,000

Total fixed cost = Total cost for 6 transistors – Total variable cost for 6 transistors

                        = $6,500 - $3,000

                        = $3,500

Expected payment for 10 transistors = Fixed cost + Variable cost

                                                            = $3,500 + (10 × $500)

                                                            = $3,500 + $5,000

                                                            = $8,500

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.