Question

PDQ Repairs has 200 auto-maintenance service outlets nationwide. It performs primarily two lines of service: oil changes and brake repair. Oil change–related services represent 60% of its sales and provide a contribution margin ratio of 15%. Brake repair represents 40% of its sales and provides a 40% contribution margin ratio. The company’s fixed costs are $15,500,000 (that is, $77,500 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 2 decimal places e.g. 0.25 and round final answers to 0 decimal places, e.g. 2,510.)

Oil changes		$Enter a dollar amount
Brake repair		$Enter a dollar amount

Answer 1

Weighted average contribution margin ratio = (60%*15%+40*40%) = 25%

Break even sales = Fixed cost/Weighted average contribution margin ratio = 15500000/.25 = $62000000

Oil changes = 62000000*60% = 37200000

Brake repair = 62000000*40% = 24800000