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 lines of service: oil changes and brake repair. Oil change%u2013related services represent 63% of its sales and provide a contribution margin ratio of 19%. Brake repair represents 37% of its sales and provides a 61% contribution margin ratio. The company%u2019s fixed costs are $16,150,000 (that is, $80,750 per service outlet).

(a) Calculate the dollar amount of each type of service that the company must provide in order to break even. (Use Weighted-Average Contribution Margin Ratio rounded to 3 decimal places e.g. 0.255 and round final answers to 0 decimal places, e.g. 2,510.)

(b) The company has a desired net income of $60,043 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? (Use Weighted-Average Contribution Margin Ratio rounded to 3 decimal places e.g. 0.255 and round final answers to 0 decimal places, e.g. 2,510.)

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Consolidated Break Even Point = Fixed Cost/Weighted Contribution Margin Ratio = 16150000/34.540% = 46757383

Break Even Point Segregated

Part B:

Thanks.

Sales Contribution Margin Ratio Weighted Contribution Margin Ratio Oil Change 63% 19% 11.970% Break Repair 37% 61% 22.570% Total 100%
34.540%

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