Fred Carson delivers parts for several local auto parts stores. He charges clients \($0.75\) per mile driven. Fred has determined that if he drives 2,000 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 \($0.40\) per mile. Fred has used the high-low method (covered in Chapter 5) to determine that his monthly cost equation is: Total Cost = \($600\) + \($0.25\) per Mile.

Required:

1. Determine how many miles Fred needs to drive to break even.

2. Assume Fred drove 1,500 miles last month. Without making any additional calculations, determine whether he earned a profit or a loss last month.

3. Determine how many miles Fred must drive to earn $ 1,000 profit.

4. Prepare a contribution margin income statement assuming Fred drove 1,500 miles last month. Use this information to calculate Fred’s degree of operating leverage.