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 Show cones served. Month January February March April May June Number of snow cones 6,400 7,000 4,000 6.900 9,000 7,250 Total operating costs $5,980 $6,400 $5,000 $6,330 $7,000 $6,575 Using the high-low method, the monthly operating costs if Pelicans sells 11,000 Show cones in a month are O A. $3,400 OB. $20,000 O C. $7.800 OD. $4,400 ber Click to select your answer * B 4:53 PM 11/5/2019 3 Backspace

Answer 1

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

= ( 7,000-5,000)/ ( 9,000-4,000)

= 2,000/5,000

= 0.4 per snow cones

Fixed cost = Highest activity cost - Highest activity x Variable cost per snow cones

= 7,000 - ( 9,000 x 0.4)

= 7,000 - 3,600

= $3,400

The monthly operating cost if Pelicans sells 11,000 snow cones in a month are

= Fixed cost + Variable cost per unit x Activity cost

= 3,400 + 0.4 x 11,000

= 3,400 + 4,400

= $7,800

Correct option is C.

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