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.

Month	Number of ice cream cones	Total operating costs
April	​1,000	​$1,800
May	​2,100	​$1,975
June	​2,125	​$2,000
July	​4,000	​$2,700
August	​2,500	​$2,175
September	​2,900	​$2,500

Using the

highminus−low

​method, the fixed costs for a month are

A.

​$3,900

B.

​$900

C.

​$1,200

D.

​$1,500

Answer 1

D. ​$1,500

Variable cost per unit = ($2,700 - $1,800) / (4,000 - 1,000) = $0.3 per unit

Fixed costs = $2,700 - (4,000 × $0.3) = $1,500