1523295716519 month, his average operating cost is Russel Preston delivers parts

Question

1523295716519 month, his average operating cost is Russel Preston delivers parts for several local auto parts stores He charges clients 1.00 per mile driven. Russell has determined that if he drives 2,700 miles in a so 80 per mile T he drives 4,700 miles in a month, his average operating cost is $0.60 per mile Russel has used the high-Jow method to determine that his monthly cost equation is: total cost $1.340.00+$0.33 per mle Required: 1. Determine how many miles Russell needs to drive to break even 2. Assume Russell drove 2,500 mles last month Without making any addsional calculations, determine whether he eamed a profnt or a loss last month O Proft O Loss d. Determine how many mles Russell must drive to earn $2.010.00 in profit 4-3. Prepare a contribution margin income stanement assuming Russell drove 2 .500 mies las moneh (Enter your answers rounded to 2 decimal places.) Contribation Margin Income Statement O Type here to search A1243 PM

Explanation / Answer

Req 1. Production cost function: 1340 + 0.33 X Variable cost per mile: $ 0.33 per mile Fixed cost: $ 1340 Revenue per mile: $ 1.00 per mile Contribution margin per mile: Revenue-Variable cost = 1.00 -0.33 = $ 0.67 per mile Break even in miles: Fixed cost /Contribution per mile = 1340 / 0.67 = 2000 miles Req 2: Profits. As the the miles driven are ablve break even miles of 2000 miles. Rreq 3: Desired profits: $ 2010 Desired contribution: 2010+1340 = 3350 Target sales: Desired contribution/ Contrbution per mile = 3350/0.67 = 5000 miles Req 4: Contribution margin income statement: sales revenue (2500 miles@1) 2,500 Less: variable ccost ( 2500 miles @ 0.33) 825 Contribution margin    1,675 less: fixed cost 1,340 net income 335 Req 4-b: Degree of operating leverage = Contribution/ Net income = 1675 /335 = 5 times

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