Ernesto Gavone started Ernie\'s Lube Services on January 1. Ernesto anticipates

Question

Ernesto Gavone started Ernie's Lube Services on January 1. Ernesto anticipates the following monthly budgeted costs: Required: Answer the questions below and show all computations. All answers should he rounded to the nearest dollar or unit Compute the number of oil changes that must be performed each month to break even, assuming Ernesto charges $24.95 for each oil change. Compute the number of oil changes that must be performed each month to earn a profit before taxes of $2,000, assuming Ernesto charges S24.95 for each oil change. Compute the number of oil changes that must be performed each month to earn a profit before taxes of S2.000. assuming Ernesto charges $29.95 for each oil change. Compute the profit or loss if Ernesto sells 400 oil changes at a price of $24.95 each. Compute the profit or loss if Ernesto sells 280 oil changes at a price of $29.95 each. What is the danger of raising prices in order to earn more profit?

Explanation / Answer

Fixed cost = 2000 +500+300+1500+250 =$4550

Variable cost =7 +1= $8

1. Breakeven number of oil changes =4550/(24.95-8) =

2.number of oil changes to earn profit of $2000 = (4550+2000)/(24.95-8) =

3.number of oil changes to earn profit of $2000 = (4550+2000)/(29.95-8) =

4.Profit = 400*(24.95-8) -4550 =$2230

5.Profit= 280*(29.95-8) -4550 =$1596

6. the danger of raising pricing is that the demand for oil changes will decrease leading to less profit.

268.44

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