How many miles Russell needs to drive to break even

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Question - 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 -

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

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.

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

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

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

Reference no: EM132767859

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