Reference no: EM132735062

Russell Preston delivers parts for several local auto parts stores. He charges clients $0.90 per mile driven. Russell has determined that if he drives 3,600 miles in a month, his average operating cost is $0.40 per mile. If he drives 5,600 miles in a month, his average operating cost is $0.35 per mile. Russell has used the high-low method to determine that his monthly cost equation is total cost = $640 + $0.26 per mile.

Required:

Problem 1. Determine how many miles Russell needs to drive to break even.

Problem 2. Assume Russell drove 1,500 miles last month. Without making any additional calculations, determine whether he earned a profit or a loss last month.

Problem 3. Determine how many miles Russell must drive to earn $800 in profit.

Problem 4-a. Prepare a contribution margin income statement assuming Russell drove 1,500 miles last month.

Problem 4-b. Use the information provided in Req 4a to calculate Russell's degree of operating leverage.