Question

Russell Preston delivers parts for several local auto parts stores. He charges clients $0.75 per mile driven. Russell has determined that if he drives 3,000 miles in a month, his average operating cost is $0.55 per mile. If he drives 4,000 miles in a month, his average operating cost is $0.50 per mile. Russell has used the high-low method to determine that his monthly cost equation is: total cost = $600 + $0.35 per mile.

Required:
1. Determine how many miles Russell needs to drive to break even.
2. Assume Russell drove 1,800 miles last month. Without making any additional calculations, determine whether he earned a profit or a loss last month.
3. Determine how many miles Russell must drive to earn $1,000 in profit.
4. Prepare a contribution margin income statement assuming Russell drove 1,800 miles last month. Use this information to calculate Russell’s degree of operating leverage.



$1.99
Sales3
Views238
Comments0
  • CreatedFebruary 27, 2015
  • Files Included
Post your question
5000