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. Using the high-low method, the monthly operating costs-if Mr. Jones sells 1,436 ice cream cones in a month-are
A)$750.
B)$859.
C)$1,109.
D)$359.

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.  Using the high-low method, the monthly operating costs-if Mr. Jones sells 1,436 ice cream cones in a month-are
A)$750. 
B)$859. 
C)$1,109. 
D)$359.

Quizplus · Accepted Answer

Using the high-low method, we need to identify the highest and lowest activity levels and the corresponding costs. From the table, the highest activity level is 1,872 cones served in August, and the corresponding cost is $1,201. The lowest activity level is 1,008 cones served in May, and the corresponding cost is $691.

Using the high-low method formula (change in cost ÷ change in activity), we get:

($1,201 - $691) ÷ (1,872 - 1,008) = $0.3866 per cone

To find the monthly cost for selling 1,436 cones, we multiply the cost per cone by the number of cones:

$0.3866 x 1,436 = $555.42

Adding in the fixed costs (i.e. the costs that do not change with the activity level), we get:

$555.42 + $553 = $1,108.42

Rounding to the nearest dollar, the monthly operating costs if Mr. Jones sells 1,436 ice cream cones in a month is $1,109, which is answer choice C.

Jones Ice Cream Stand Is Operated by Mr