Russell Preston deivers parts for several local auto parts stores. He charges cl

Question

Russell Preston deivers parts for several local auto parts stores. He charges clents 0.80 per mile driven. Russell has determined that if he drives 4,000 miles in a month, his average operating cost is $0.65 per mile. If he drives 5,000 miles in a month, his average operating cost is $0.60 per mile. Russell has used the high-low method to determine that his monthly cost equation is: total cost $520.00+$0.40 per mile. Required: 1. Determine how many miles Russell needs to drive to break even. Even Mles Mles 2. Assume Russel drove 1,800 miles last month. Without making any additonal calculations, determine whether he eamed a profit or a loss last month. Loss Proft 3. Determine how many miles Russell must drive to eern $1,850.00 in pro. Mles Miles 4-a. Prepare a contribution margin income statement assuming Russell drove 1,800 miles last month. (Enter your answers rounded to 2 decimal places.) RUSSELL PRESTON Contribution Margin Income Statement For Last Month Contribution Margin Income from Operations 4-b. Use the above information to calculate Russell's degree of operating leverage. (Round your answer to the 2 decimal places.) of

Explanation / Answer

1)Total cost =$520+$0.40 per mile

Sale Price = $0.80 per mile

Break even = Fixed cost/(Selling price-Variable cost)

Break Even = 520/(0.80-0.40)

= 1300miles

2) Since, break even is at 1300 miles,any further mile will generate profit. Therefore,1800 miles will generate profit only i.e. option 2.

3) Since, fixed cost is already covered while reaching breakeven,thus,for making profit of $1850 one has to cover (1850/0.40)miles i.e 4625miles.

4)a) Contribution Margin Income Statement:

Profit 200

4b) Degree of Operating Leverage

(Sales-Variable Cost)/(sales-variable cost-fixed cost)

720/200

3.6 times

Particulars Amount Sales(1800*0.80) 1440 Less:Variable Cost(1800*0.4) 720 Contribution 720 Less:Fixed Cost 520

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.