Question

100 must sell in order to break even under this Compu and tai compa E6.7 (LO2), AN Service PDQ Repairs has 200 auto-maintenance service outlets nationwide. It per- forms primarily two lines 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% contribution margin ratio. The company's fixed costs are $15,600,000 (that is, $78,000 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 $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?

Answer 1

Brake Repair Oil Changes 70% 30% Sales mix Contribution margin ratio 20% 40% Weighted Average contribution margin ratio 70%*20% + 30%*40% 26.00% Requirement A Dollar sales to break even Fixed cost Weighted avg contribution margin ratio $15600000/26% $ 60,000,000.00 Since sales mix is 70:30 Oil Changes Brake Repair $ 60000000 *70% 42,000,000.00 $18,000,000.00 60000000*30% Requirement B Desirted Net Income = $52,000 peroutlet Dollar sales required to attain target net income of $52000per outlet Fixed cost Target income Weighted avg cm ratio 15600000+200*52000/26% $ 100,000,000.00 Since sales mix is 70:30 Brake Repair Oil Changes 100000000*70% $ 70,000,000.00 $30,000,000.00 100000000*30%