Analyzing Mixed Costs Using High-Low Method and Preparing Contribution Margin Income State...

Analyzing Mixed Costs Using High-Low Method and Preparing Contribution Margin Income Statement

Frieda Carson delivers parts for several local auto parts stores. She charges clients $0.75 per mile driven. She has determined that if she drives 2,000 miles in a month, her average operating cost is $0.55 per mile. If Frieda drives 4,000 miles in a month, her average operating cost is $0.40 per mile.

Required:

1. Using the high-low method, determine Frieda’s variable and fixed operating cost components. Show this as a linear cost formula (Y = A + BX).

2. Prepare a contribution margin income statement for the business last month when Frieda drove 1,500 miles.