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Aldo Redondo drives his own car on company business. His employer reimburses him for such travel at the rate of 45 cents per mile. Aldo estimates that his fixed costs per year—such as taxes, insurance, and depreciation—are $2,200. The direct or variable costs—such as gas, oil, and maintenance—average about 18.5 cents per mile.
How many miles must he drive to break even?

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Answer:

Break-even point in miles= 8,302 miles

Explanation:

Giving the following information:

Income per mile= $0.45

Fixed costs= $2,200

Unitary cost per mile= $0.185

To calculate the break-even point in miles, we need to use the following formula:

Break-even point in miles= fixed costs/ contribution margin per mile

Break-even point in miles= 2,200 / (0.45 - 0.185)

Break-even point in miles= 8,302 miles

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