Russell Preston delivers parts for several local auto parts stores. He charges clients $0.95 per mile driven. Russell has determined that if he drives 4,000 miles in a month, his average operating cost is $0.75 per mile. If he drives 6,000 miles in a month, his average operating cost is $0.65 per mile. Russell has used the high-low method to determine that his monthly cost equation is total cost = $800 + $0.45 per mile.

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

2. Assume Russell drove 1,900 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 $1,300 in profit.

4-a. Prepare a contribution margin income statement assuming Russell drove 1,900 miles last month.

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

Coves Cakes is a local bakery. Price and cost information follows:

Price per cake	$	15.01
Variable cost per cake
Ingredients		2.35
Direct labor		1.06
Overhead (box, etc.)		0.19
Fixed cost per month	$	4,449.90

Required:

1. Calculate Coves new break-even point under each of the following independent scenarios:

a. Sales price increases by $1.50 per cake.

b. Fixed costs increase by $485 per month.

c. Variable costs decrease by $0.34 per cake.

d. Sales price decreases by $0.80 per cake.

2. Assume that Cove sold 415 cakes last month. Calculate the companys degree of operating leverage.

3. Using the degree of operating leverage, calculate the change in profit caused by a 10 percent increase in sales revenue.

Lindstrom Company produces two fountain pen models. Information about its products follows:

	Product A			Product B
Sales revenue	$	115,000		$	165,000
Less: Variable costs		41,400			52,800
Contribution margin	$	73,600		$	112,200
Total units sold		5,000			5,000

Lindstroms fixed costs total $82,500.

Required:

1. Determine Lindstroms weighted-average unit contribution margin and weighted-average contribution margin ratio.

2. Calculate Lindstroms break-even point in units and in sales revenue.

3. Calculate the number of units that Lindstrom must sell to earn a $110,000 profit.

4. Calculate Lindstroms margin of safety and margin of safety as a percentage of sales if it sells 8,800 total pens.