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. Using the high-low method, the fixed costs for a month are
A)$3000
B)$13,000
C)$2600
D)$5400

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.  Using the high-low method, the fixed costs for a month are
A)$3000 
B)$13,000 
C)$2600 
D)$5400

Quizplus · Accepted Answer

Using the high-low method, we need to find the highest and lowest values for both the number of snow cones and the operating costs. 
The highest snow cones served was 6,000, with operating costs of $8,200. 
The lowest snow cones served was 4,000, with operating costs of $5,600. 
Next, we calculate the variable cost per snow cone: 
Variable cost per snow cone = (high operating costs - low operating costs) / (high snow cones served - low snow cones served) 
Variable cost per snow cone = ($8,200 - $5,600) / (6,000 - 4,000) 
Variable cost per snow cone = $1.80 
Now, we can calculate the fixed costs by using either the high or low data points: 
Fixed costs = high operating costs - (variable cost per snow cone x high snow cones served) 
Fixed costs = $8,200 - ($1.80 x 6,000) 
Fixed costs = $2600 
Therefore, the fixed costs for a month are $2600 (Choice C).

Pelicans Ice Is a Snow Cone Stand near the Local