E5-17 Estimating Cost Behavior Using High-Low Method, Preparing Contribution Mar

ID: 2610829 • Letter: E

Question

E5-17 Estimating Cost Behavior Using High-Low Method, Preparing Contribution Margin Income Statement [LO 5-3, 5-5) 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 Required 1. Using the high-low method, determine Joyce's variable and fixed operating cost components. (Round your cost per unit answer to 2 decimal places.) 215 t for Jovce's service assuming she drove 2.4

Explanation / Answer

(1).

Using high-low method variable cost and fixed cost will be calculated as follow;

If drives 3300 miles then total operating costs are $875

If drives 4400 miles then total operating costs are $1095

So difference in miles driven (4400 – 3300) = 1100 miles

Difference in total operating costs ($1095 – $875) = $220

Thus variable cost per mile driven ($220 / 1100) = $0.20

Fixed cost $875 – (3300 * $0.20) = $215

(2).

JOYCE MURPHY

Contribution Margin Income Statement

For the last month

Sales Revenue (2400 * $0.50)

$1200

Less: Variable costs (2400 * $0.20)

($480)

Contribution margin

$720

Less: Fixed cost

($215)

Net operating income

$505