Joyce Murphy runs a courier service in downtown Seattle. She charges clients $0.50 per mile driven. Joyce has determined that if she drives 3,300 miles in a month, her total operating cost is $875. If she drives 4,400 miles in a month, her total operating cost is $1,095. Joyce has used the high-low method to determine that her monthly cost equation is: total monthly cost = $215 + $0.20 per mile driven.

Required:

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

2. Calculate Joyce’s degree of operating leverage if she drives 4,200 miles.

3. Suppose Joyce took a week off and her sales for the month decreased by 25 percent. Using the degree of operating leverage, calculate the effect this will have on her profit for that month.