Final answer:
Carla Vista Productions uses flexible budgets to adjust costs with changes in production levels, and preparing a new budget for 4,290 units would involve scaling up costs from the previous budget based on 3,290 units. Economies of scale may also affect their unit cost as production increases.
Step-by-step explanation:
Carla Vista Productions operates with flexible budgets, which means their budgeting system adjusts costs based on changes in production volumes. This approach is different from static budgets, which stay the same regardless of the production levels. In the context of the student's question, if Carla Vista prepares a flexible budget for producing and selling 4,290 units, the budget allocations for various costs like raw materials, labor, and overhead would be scaled up proportionally to the increase in unit production, from the original budget based on 3,290 units. For example, if their unit variable cost is constant, total variable costs would increase in direct proportion to the increase in production volume.
Understanding economies of scale is also crucial as production numbers rise. With economies of scale, a company like Carla Vista might find that increasing its output to 4,290 units could reduce the average cost per unit. This happens when, for instance, buying raw materials in larger quantities results in lower prices or when spreading fixed costs over more units reduces the fixed cost per unit.
The actual impact on the company's budget would depend on a variety of factors, such as whether costs are strictly variable, the presence of fixed costs, and whether any step-fixed costs are encountered as production levels change.