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 1440 ice cream cones in a month are (Round any intermediary calculations to the nearest cent.)
A)$1500
B)$1200
C)$2076
D)$576

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 1440 ice cream cones in a month are (Round any intermediary calculations to the nearest cent.)
A)$1500 
B)$1200 
C)$2076 
D)$576

Quizplus · Accepted Answer

Using the high-low method, we need to find the variable cost per unit and the fixed cost.

Variable cost per unit = (high cost - low cost) / (high volume - low volume)
= ($2,574 - $1,413) / (1,600 - 800) 
= $1.50 per cone

Now we can use either the high or low cost and the variable cost per unit to find the fixed cost:

High cost = Fixed cost + (Variable cost per unit * High volume)
$2,574 = Fixed cost + ($1.50 * 1,600)
Fixed cost = $2,574 - $2,400 
Fixed cost = $174

Low cost = Fixed cost + (Variable cost per unit * Low volume)
$1,413 = $174 + ($1.50 * 800)
$1,413 = $1,374 
Therefore, the fixed cost is $174, and the monthly operating cost for selling 1440 ice cream cones would be:
Monthly operating cost = Fixed cost + (Variable cost per unit * 1440)
= $174 + ($1.50 * 1440) = $2076

Therefore, the answer is C, $2076.

Jones Ice Cream Stand Is Operated by Mr