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 40% cintribution margin ratio. the companys fixed costs are $15,600,000 (that is, $78,000 per service outlet).

instructions :

(a) 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?

(b) The company has a desired net income of $52,000 per service outlet. What is the dollar amount of each type of service that must be performed by each service outlet to meet its target net income per outlet.

Explanation / Answer

(a) what is the dollar amount of each type of service that must be provided by each service outlet to meet its break even sale per outlet?

Combined Contribution Margin Ratio = 70%*20% + 30%*40%

Combined Contribution Margin Ratio = 26%

Break Even Sales = Fixed costs/Combined Contribution Margin Ratio

Break Even Sales = 78000/26%

Break Even Sales = $ 300000

Break Even Sales for oil changes = Total Break Even Sales* 70%

Break Even Sales for oil changes = 300000*70%

Break Even Sales for oil changes = 210000

Break Even Sales for brake repair = Total Break Even Sales* 30%

Break Even Sales for brake repair = 300000*30%

Break Even Sales for brake repair = 90000

(b) The company has a desired net income of $52,000 per service outlet. What is the dollar amount of each type of service that must be performed by each service outlet to meet its target net income per outlet.

Combined Contribution Margin Ratio = 26%

Total Desired Level Sales = (Fixed costs+target net income) /Combined Contribution Margin Ratio

Total Desired Level Sales = (78000+52000)/26%

Total Desired Level Sales = $ 500000

Desired Level Sales for oil changes = Total Desired Level Sales * 70%

Desired Level Sales for oil changes = 500000*70%

Desired Level Sales for oil changes = 350000

Desired Level Sales for brake repair = Total Desired Level Sales * 30%

Desired Level Sales for brake repair = 500000*30%

Desired Level Sales for brake repair = 150000

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