qwik repairs has over 200 auto-maintenance service outlets nationwide. it provid

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
the company has a desired net income of $60,000 per service outlet. what is the dollar amount of each type of service that must be provided by each service outlet to meet its target net income per outlet?

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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