Russell Preston delivers parts for several local auto parts stores. He charges c
ID: 2502990 • Letter: R
Question
Russell Preston delivers parts for several local auto parts stores. He charges clients 0.78 per mile driven. Russell has determined that if he drives 1,700 miles in a month, his average operating cost is $0.59 per mile. If he drives 4,500 miles in a month, his average operating cost is $0.40 per mile. Russell has used the high-low method to determine that his monthly cost equation is: total cost = $535.00 + $0.28 per mile.
1) Determine how many miles Russell needs to drive to break even.
Break-Even Miles: _________
2) Assume Russell drove 1,370 miles last month. Without making any additional calculations, determine whether he earned a profit or a loss last month.
Loss or Profit?
3) Determine how many miles Russell must drive to earn $1,075.00 in profit.
Target Miles: __________
4) Prepare a contribution margin income statement assuming Russell drove 1,370 miles last month.(Enter your answers rounded to 2 decimal places.)
4) Prepare a contribution margin income statement assuming Russell drove 1,370 miles last month.(Enter your answers rounded to 2 decimal places.)
Explanation / Answer
for Brk even
sales = cost
.78*Q = 535+.28*Q
.5Q = 535
Q = 535/.5 =1070 miles
2).
he earn profit becaue from above eqn
his sales i.e .78*Q = .78*1370 will be greater than his cost
check from graph of these two eqn
3)
Profit = sales-cost
1075 = .78*Q-535-.28*Q
1075 = .5Q-535
Q = (1075+535)/.5 = 3220 miles
4)
contribution margin = .78*1370-.28*1370 = $685
DOL = (P-V)*Q/((P-V)Q-FC)
DOL = 685/(685-535) = 4.56
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