Joyce Murphy runs a courier service in downtown Seattle. She charges clients $0.60 per mile driven. Joyce has determined that if she drives 2,250 miles in a month, her total operating cost is $625. If she drives 3,350 miles in a month, her total operating cost is $845.

The computation of the fixed cost and the variable cost per hour by using high low method is shown below:

Variable cost per mile = (High Operating cost - low operating cost) : (High miles - low miles)

= ($845 - $625) : (3,350 miles - 2,250 miles)

= $220 : 1,100 miles

= $0.2 per miles

Now the fixed cost equal to

= High operating cost - (High miles * Variable cost per miles)

= $845 - (3,350 miles * $0.2 per miles)

= $845 - $670

= $175

And, the contribution margin income statement is presented below:

Sales (1,400 * $0.6) $840

Less: Variable cost (1,400 * $0.2) ($280)

Contribution margin $560

Less: Fixed cost ($175)

Net operating income $385