14, Qwik Service has over 200 auto-maintenance service outlts nationwide. It pro

Question

14, Qwik Service has over 200 auto-maintenance service outlts nationwide. It provides primarily tw represent 75% of its sales and provide a contribution margin ratio of 20% Brake repair o lines of service: oil changes and brake repair. Oil change-related services represents 25% of its sales and provides a 60% contribution margin ratio. The company's fixed costs are $15,000,000 (that is, $75,000 per service outlet). Instructions (a) Calculate the dollar amount of each type of service that the company must provide in order to break even. (b) The company has a desired net income of $45,000 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

Req a: Total fixed cost: 15,000,000 Weighted Average CM ratio: Sales mix CM ratio Weighted Oil Change 75% 20% 15% Brake repair 25% 60% 15% Weighted CM ratio: 30% Break even in $ for t he company: Total fixed cost/ Weighted CM ratio 15000,000 /30% = $50000,000 Sales of each product for break even: Oil Change (50000,000*75%): $ 37500,000 Brake Repair: (50000,000*25%): $12500,000 Rreq b: Desired Net income pf each outlet: $ 45000 Fixed coost of each outlet: $ 75000 Total desired contribution for each outlet: 45000+75000 = $ 120,000 Weighted Average Cm ratio: 30% Target sales for each outlet: Desired Contribution/ CM ratio 120000 /30% = $ 400,000 Sales of eacah product to eanr desired profits: Oil change (400000*75%): $ 300,000 Brake repair (400000*25%): $100,000

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