Question

Joyce Murphy runs a courier service in downtown Seattle. She charges clients $0.60 per mile driven. Joyce has determined that if she drives 2650 miles in a month, her total operating cost is $825. If she drives 3.750 miles in a month, her total operating cost is $1,045. Required: 1. Using the high-low method, determine Joyce's variable and fixed operating cost components 2. Complete the contribution margin income statement for Joyce's service assuming she drove 1850 miles last month. (Assume this falls within the relevant range of operations). Complete this question by entering your answers in the tabs below. Required 1 Required 2 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 Required 2 >

Answer 1

Ans:

1.

High low method

Variable cost = (C1-C2) / (X1-X2)

C1 = Total cost at high activity level = $ 1,045

C2 = Total cost at Low activity level = $ 825

X1 = high activity level = 3750 miles

X2 = Low activity level = 2650 miles

Variable cost = $ 1045 - $ 825 / (3750-2650)

= $ 220 / 1100

= $ 0.2 per mile

Fixed cost = Total cost - variable cost * number of miles

= $ 1,045 - $ 0.2 * 3750 miles

= $ 1,045 - $ 750

= $ 295

2.

JOYCE MURPHY
Contribution Margin Income statement
For the month
Total miles drove	1850 miles
Revenue (1850 * 0.6 per mile)	1110
Less: Variable cost (1850*0.2 per mile)	-370
Total Contribution margin	740
Less: Fixed cost	-295
Net operating Income	445