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 5 comma 000 $ 5 comma 000 April ?6,900 ?$6,330 May 9 comma 000 $ 7 comma 000 June ?7,250 ?$6,575 Using the highminuslow ?method, the fixed costs for a month are A. $ 12 comma 000 B. $ 2 comma 500 C. $ 4 comma 500 D. $ 2 comma 000

Answer 1

Answer:

The correct answer is B.

Explanation:

Giving the following information:

Month Number of snow cones Total operating costs

January 6,400 $5,980

February 7,000 $6,400

March 5,000 $5,000

April 6,900 $6,330

May 9,000  $7,000

June 7,250 $6,575

To calculate the fixed costs using the high-low method, first, we need to calculate the unitary variable cost:

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

Variable cost per unit= (7,000 - 5,000) / (9,000 - 5,000)= $0.5 per unit

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

Fixed costs= 7,000 - (0.5*9,000)= 2,500

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

Fixed costs= 5,000 - (0.5*5,000)= 2,500