Question

Pelicans Ice is a snow cone stand near the local park. To plan for the​ future, Pelicans Ice 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 ​4,000 ​$5,000 April ​6,900 ​$6,330 May ​9,000 ​$8,000 June ​7,250 ​$6,575 Using the highminuslow ​method, the fixed costs for a month are

Answer 1

Fixed costs= $2,600

Step-by-step explanation:

Giving the following information:

January ​6,400 ​$5,980

February ​7,000 ​$6,400

March ​4,000 ​$5,000

April ​6,900 ​$6,330

May ​9,000 ​$8,000

June ​7,250 ​$6,575

To calculate the fixed costs under the high-low method, we need to use the following formulas:

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

Variable cost per unit= (8,000 - 5,000) / (9,000 - 4,000)

Variable cost per unit= $0.6 per unit

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

Fixed costs= 8,000 - (0.6*9,000)

Fixed costs= $2,600

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

Fixed costs= 5,000 - (0.6*4,000)

Fixed costs= $2,600