Fred Carson delivers parts for several local auto parts stores. He charges clien

Question

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 to determine that his monthly cost equation is: Total Cost = $600 + $0.25 per Mile.

2. Determine how many miles Fred must drive to earn $1,000 profit. (Round intermediate calculations to 2 decimal places.)

Target units:_______miles

Explanation / Answer

From the equation, it is seen that the fixed cost is $600 while the variable cost is $0.25/mile. Contribution per mile = 0.75 - 0.25 = $0.50 Targeted units = (600 + 1000) / 0.50 = 3200 miles Hope this helps!

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