Question

Pelicans Ice is a snow cone stand near the local park. To plan for the future, it wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served.

Month Number of snow cones Total operating costs
January 6,400 $5,980
February 7,000 $6,400
March 4000 $5000
April 6,900 $6,330
May 8000 $9000
June 7,250 $6,575

Using the high-low method, the monthly operating costs if Pelicans sells 12,000 snow cones in a month are:

A) $9,800. B) $7,200. C) $21,000. D) $2,600.

Answer 1

The total operating of 12,000 snow cones is $13,000

Step-by-step explanation:

Variable cost=Cost at highest level-Cost at lowest level/highest activity-lowest activity

cost at highest level of activity=$9000,with 8000 level of activity

cost at lowest level of activity =$5,000 with 4000 level of activity

variable cost=$9,000-$5,000/8000-4000=$1

fixed cost=total cost -variable cost

at 8,000 level of activity fixed cost is computed thus:

fixed cost=$9,000-(8000*$1)=$1000

for 12,000 snow cones

total cost=$1,000+(12,000*$1)=$13,000

The options are not correct