Preparing Contribution Margin Income Statement, Analyzing Break-Even Point, Setting Target Profit
Tina Sutton delivers flowers for several local flower stores. She charges clients $0.85 per mile driven. Tina has determined that if she drives 1,200 miles in a month, her average operating cost is $0.70 per mile. If she drives 2,000 miles in a month, her average operating cost is $0.60 per mile.
Tina has used the high-low method (covered in Chapter 5) to determine that her monthly cost equation is: Total Cost = $300 + $0.45 per Mile.
Required:
1.Determine how many miles Tina needs to drive to break even.
2.Assume Tina drove 900 miles last month. Without making any additional calculations, determine whether she earned a profit or a loss for the month.
3.Prepare a contribution margin income statement assuming Tina drove 900 miles last month.
4.If Tina wants to earn $800 a month, determine how many miles she must drive.
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