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 behaviour 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.

Which of the following would be​ Suzy's Cool​ Treatz's contribution margin be if Suzy prepared a contribution margin income statement for the​ month?

Answer 1

Highest activity cost = $6,800

Lowest activity cost = $5,000

Highest activity = 5,000

Lowest activity = 3,500

Variable cost per cone= (Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity)

= (6,800-5,000)/(5,000-3,500)

= 1,800/1,500

= $1.2 per cone

Fixed cost = Highest activity cost - Highest activity x Variable cost per cone

= 6,800-5,000 x 1.2

= 6,800-6,000

= $800

Number of units sold = 4,500

Selling price per unit = $3

Contribution margin per unit = Selling price per unit - Variable cost per unit

= 3-1.2

= $1.8

Total contribution margin = Contribution margin per unit x Number of units sold

= 1.8 x 4,500

= $8,100

Suzy's Cool​ Treatz's contribution margin be $8,100.