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 costsJanuary 6400 5980 February 7000 6400March 4000 4000April 6900 6330May 9000 8000June 7250 6575Using the high-low method, the monthly operating costs if Pelicans sells 12,000 snow cones in a month are:__________. A. $9,600 B. $21,000 C. $800 D. $10,400

Answer 1

Total cost= $10,400

Step-by-step explanation:

Giving the following information:

Month Number of snow cones Total operating costs

January 6400 5980

February 7000 6400

March 4000 4000

April 6900 6330

May 9000 8000

June 7250 6575

UNits= 12,000

First, we need to calculate the unitary variable cost and total fixed cost:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (8,000 - 4,000) / (9,000 - 4,000)

Variable cost per unit= $0.8

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 8,000 - (0.8*9,000)

Fixed costs= $800

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 4,000 - (0.8*4,000)

Fixed costs= $800

Now, for 12,000 units:

Total cost= 800 + 12,000*0.8

Total cost= $10,400