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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 fixed cost for a month are?
MONTH NUMBER OF ICE CREAM CONES TOTAL OPERATING COST
APRIL 800 950
MAY 825 975
JUNE 1125 1000
JULY 2000 1250
AUGUST 1500 1875
SEPTEMBER 900 1500
A) 2,200
B) 750
C) 300

Sagot :

Answer:

B) 750

Explanation:

The computation of the fixed cost using the high-low method is as follows:

But before that the variable cost per unit should be determined

Variable cost is  

=[ ($1,250 - $950) ÷ (2000 - 800)]

= $0.25 per ice cream

Now the fixed cost is

= [$1,250 - ($0.25 × 2000)]

= $750

hence, the option b is correct

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