Atwood Dairy Bar sells its famous soft-serve ice cream cones near a marina and resort area.The owner,Theresa,wants to determine the cost behavior patterns to help planning for the next summer season.She has the following information available about the operating costs and the number of soft-serve cones served. $$\begin{array} { | l | c | c | }
\hline { \text { Month } } & \text { Number of soft-serve cones } & \text { Total aperatine costs } \
\hline \text { April } & 8,200 & \$ 5,200 \
\hline \text { May } & 8,600 & \$ 5,500 \
\hline \text { June } & 7,500 & \$ 4,500 \
\hline \text { July } & 9,700 & \$ 6,000 \
\hline \text { August } & 8,900 & \$ 5,900 \
\hline \text { September } & 5,700 & \$ 5,000 \
\hline
\end{array}$$ Theresa uses the high-low method to determine the operating cost equation and sells 8,000 cones in a month for $2.00 each.
-What would the operating income be if she prepared a traditional income statement for the month?
A)$16,000
B)$14,000
C)$10,425
D)$2,000

Question

Atwood Dairy Bar sells its famous soft-serve ice cream cones near a marina and resort area.The owner,Theresa,wants to determine the cost behavior patterns to help planning for the next summer season.She has the following information available about the operating costs and the number of soft-serve cones served. $$\begin{array} { | l | c | c | } 
\hline  { \text { Month } } & \text { Number of soft-serve cones } & \text { Total aperatine costs } \
\hline \text { April } & 8,200 & \$ 5,200 \
\hline \text { May } & 8,600 & \$ 5,500 \
\hline \text { June } & 7,500 & \$ 4,500 \
\hline \text { July } & 9,700 & \$ 6,000 \
\hline \text { August } & 8,900 & \$ 5,900 \
\hline \text { September } & 5,700 & \$ 5,000 \
\hline
\end{array}$$ Theresa uses the high-low method to determine the operating cost equation and sells 8,000 cones in a month for $2.00 each.
-What would the operating income be if she prepared a traditional income statement for the month?
A)$16,000
B)$14,000
C)$10,425
D)$2,000

Quizplus · Accepted Answer

Using the high-low method, the variable cost per cone is (1170-900)/(7000-4000) = $0.06. 
The fixed cost is calculated by using either: 
- Total cost (TC) = FC + VC(Q) 
- Or plugging in one set of data and solving for the fixed cost, and then using that fixed cost in the equation to solve for other values. 
Using the first method, we have: 
$1,170 = FC + ($0.06 x 7,000) 
FC = $1,170 - $420 = $750 
The operating cost equation is: 
TC = $750 + ($0.06 x Q) 
At 8,000 cones, the total cost is: 
TC = $750 + ($0.06 x 8,000) = $1,170 
The operating income is: 
Operating income = Revenue - Total Cost = (8,000 x $2.00) - $1,170 = $14,830 
Therefore, the correct answer is C).

Atwood Dairy Bar Sells Its Famous Soft-Serve Ice Cream Cones