Question

Suzy’s Cool Treatz is a snow cone stand near the local park. To plan for the future, the owner wants to determine her cost behavior patterns. She has the following information available about her operating costs and the number of snow cones served.

Month	Number of snow cones	Total operating costs
January	3,500	$5,000
February	3,800	$4,800
March	5,000	$6,800
April	3,600	$5,450
May	4,700	$6,200
June	4,250	$5,950

Suzy uses the high-low method to determine her operating cost equation. What are her estimated costs at 4,214 snow cones? When calculating the variable cost per unit, round your answer to two decimal places before completing your calculations. Do not use dollar signs, commas or decimals in your answer. Input your answer to the nearest whole number.

Answer 1

Answer:-1)- Variable costs per snow cone= 1.2 per snow cone
Fixed costs = 800

2) Cost equation formula- y = 800 + 1.2x

2)- Total operating costs at 4214 snow cones = 5857.

Explanation:-

High-Low Method:-

Variable Cost per Unit

Variable cost per unit (b) is calculated using the following formula:

Variable cost per unit = (Y2-Y1)/(X2-X1)

Where,
y2 is the total cost at highest level of activity;
y1 is the total cost at lowest level of activity;
x2 are the number of units/miles/ labor ,machine hours etc. at highest level of activity; and
x1 are the number of units/miles/ labor, machine hours etc. at lowest level of activity

The variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of machine hours).

Total Fixed Cost

Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:

Total Fixed Cost = (y2 – b)*x2 = (y1 – b*x1)

We have,
at highest activity: x₂ = 5000 snow cones; y₂ = $6800
at lowest activity: x₁ = 3500 snow cones; y₁ = $5000

1)-Variable Cost per snow cone = ($6800− $5000) /(5000 -3500 )  

= $1800/1500 snow cones

= $1.2 per snow cone
Total Fixed Cost = $5000 − ($1.2 per snow cone *3500 snow cones)

= $5000 – $4200

=$800

2)-Total operating costs =Variable costs+ Fixed costs

=(4214 snow cones*$1.2 per snow cone)+800

=5057+800

=5857