Question

Answer the following​ question(s) using the information below.

​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 and sells​ 4,500 cones in a month for​ $3.00 each.

What would​ Suzy's Cool Treatz operating income be if Suzi prepared a traditional income statement for the​ month?

ANSWERS:

A.

​$7,300

B.

​$13,500

C.

​$8,100

D.

​$5,400

PLEASE EXPLAIN

Answer 1

High Low Method
Variable Cost	$ 1.20	=(6800-5000)/(5000-3500)
( Change in Cost / Change in Level of activity )
Fixed Costs	$ 800	=6800-(5000*1.2)
At Level of 4,500 Cones	Amount $
Sales revenue ( 4,500 x 3 )	13,500
Less: Variable Cost ( 4,500 x 1.20 )	5,400
Less: Fixed Costs	800
Operating Income	7,300
Correct answer is option A .