qwik repairs has over 200 auto-maintenance service outlets nationwide. it provid
ID: 2349324 • Letter: Q
Question
qwik repairs has over 200 auto-maintenance service outlets nationwide. it provides primarily two line of service: oil changes and brake repair. oil change-related services represent 70% of its sales and provide a contribution margin ratio of 20%. brake repair represents 30% of its sales and provides a 60% cintribution margin ratio. the companys fixed costs are $16,000,000 (that is, $80,000 per service outlet).instructions
calculate the dollar amount of each type of service that the company must provide in order to brea even
Explanation / Answer
FC per outlet is $80,000 & Desired Net Inc is $60,000 So Total Cont = Net Inc + FC = 60000+80000 = 140,000 Oil change CM ratio = 20% = Contribution Margin / (70%*Sales) So Cont Margin for Oil = 20%*70%*Sales = 14%*Sales = 0.14*Sales Break Repair CM ratio = 60% = Contribution Margin / (30%*Sales) So Cont Margin for Break = 60%*30%*Sales = 18%*Sales = 0.18*Sales Now Total Cont = COnt Marhin for Oil + Cont Margin for Break = 140,000 So we have 0.14*Sales + 0.18*Sales = 140,000 So Sales = 140,000/(0.14+0.18) = $437,500 So Oil Sales = 70%* $437,500 = $306,250 & BReak Sales = 30%* $437,500 = $131,250
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