Question

Jones Ice Cream Stand is operated by Mr. Jones and experiences different sales patterns throughout the year. To plan for the future, Mr. Jones wants to determine its cost behavior patterns. He has the following information available about the ice cream stand's operating costs and the number of soft serve cones served. Month April May June Number of ice cream cones 1,000 2,100 2,125 4,000 2,500 2,900 Total operating costs $1,800 $1,975 $2,000 $2,700 $2,175 $2,500 July August September Using the high-low method, the fixed costs for a month are O A. $1,500 O B. $1,200 OC. $3,900 OD. $900

Answer 1

Answe is option (a)

$1500

Low month april

No. Of ice cream cones 1000 and operating cost is $1800

High month july no. Of cones 4000 and cost is. $2700

Variable cost is = 2700-1800 / 4000 - 1000

=900/3000 = 0.30 per unit

At level 1000 variable cost is 0.30*1000 = 300

Total cost 1800 therefore fixed cost is $1500

Same can be reached at 4000 level where variable cost will be 0.30*4000 is 1200 total cost 2700 and fixed cost 1500