Joyce Murphy runs a courier service in downtown Seattle. She charges clients SO.

Question

Joyce Murphy runs a courier service in downtown Seattle. She charges clients SO.60 per mile driven. Joyce has determined that if she drives 2,850 miles in a month, her total operating cost is $925. If she drives 3,950 miles in a month, her total operating cost is $1,145. 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.) Variable Cost per Mile Driven Fixed Cost 2. Complete the contribution margin income statement for Joyce's service assuming she drove 2,050 miles last month. (Assume this falls within the relevant range of operations) JOYCE MURPHY Contribution Margin Income Statement For the Last Month Contribution Margin Net Operating Income

Explanation / Answer

Solution:(1): Calculation of fixed and variable Operating cost:

Variable cost per mile driven = ($1145-$925)/(3950miles-2850miles) = $0.2

Fixed cost = 1145-(3950*0.2) = $355

Solution:(2): Contribution margin income statement:

Particulars Amount ($) Total service Revenue ($0.6*2050) 1,230 Less: Variable cost($0.2*2050) 410 Contribution margin 820 Less: Fixed cost 355 Net operating income 465

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