Pelicans Ice is a snow cone stand near the local park. To plan for the future, it wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served.Number of snow conesTotal operating costs$5,980$6.400$5,000$6,330$8,000$6,575MonthJanuaryFebruary6,4007,0004,0006,9009,0007,250MarchAprilMayJuneUsing the high - low method, the monthly operating costs if Pelicans sells 8,000 snow cones in a month areO A. $17,000о В. $4,800O C. $7,400O D. $2,600

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Asked Oct 13, 2019
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Pelicans Ice is a snow cone stand near the local park. To plan for the future, it wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served.
Number of snow cones
Total operating costs
$5,980
$6.400
$5,000
$6,330
$8,000
$6,575
Month
January
February
6,400
7,000
4,000
6,900
9,000
7,250
March
April
May
June
Using the high - low method, the monthly operating costs if Pelicans sells 8,000 snow cones in a month are
O A. $17,000
о В. $4,800
O C. $7,400
O D. $2,600
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Pelicans Ice is a snow cone stand near the local park. To plan for the future, it wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served. Number of snow cones Total operating costs $5,980 $6.400 $5,000 $6,330 $8,000 $6,575 Month January February 6,400 7,000 4,000 6,900 9,000 7,250 March April May June Using the high - low method, the monthly operating costs if Pelicans sells 8,000 snow cones in a month are O A. $17,000 о В. $4,800 O C. $7,400 O D. $2,600

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Expert Answer

Step 1

Cost incurred to produce and sell a product consist of 2 components, variable cost, and fixed cost.

Variable cost is the cost that changes with the change in production levels. It is directly proportional to the units produced.

Fixed cost is the other indirect cost incurred by the business. These are fixed in nature and do not change with the change in production level.

The high-low method involves taking the highest level of activity and the lowest level of activity and comparing the total costs at each level.

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Variable Cost per Unit = Highest Activity Cost-Lowest Activity Cost Highest units- Lowest units

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Step 2

Computation of Cost

In the given question:

Highest number of Snow Cones = 9,000

Total Operating Cost  = $8,000

Lowest number of Snow Cones = 4,000

Total Operating Cost = $5,000

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Variable Cost per Unit = Highest Activity Cost-Lowest Activity Cost Highest units- Lowest units Variable Cost per Unit 8000 5000 9000 4000 Variable Cost per unit 3000 5000 = S0.6 per unit Fixed Cost 8,000- (9,000*.6) 8,000 5,400 - $2,600

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Step 3

Total Operating Cost in case...

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Fixed Cost $2,600 Variable Cost $0.6 per unit Number of Snow Cones 8,000 Cost Equation Total Cost Fixed Cost Variable cost per unit * no of units) 2,600 (8000*0.6) -2600 4800 =$7,400

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