Qwik Service has over 200 auto-maintenance service outlets nationwide. It provid

Question

Qwik Service has over 200 auto-maintenance service outlets nationwide. It provides primarily two lines of service: oil changes and brake repair. Oil change-related services represent 75% of its sales and provide a contribution margin ratio of 20%. Brake repair 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).

Calculate the dollar amount of each type of service that the company must provide in order to break even. Oil changes Brake repair eTextbook and Media Your answer is incorrect. 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? Oil changes Brake repair

Explanation / Answer

1 Oil Changes Brake Repair A Sales Mix 75% 25% B Contribution Margin Ratio 20% 60% A*B Weighted Av Contribution Margin 15.00% 15.00% 30.00% A Fixed Cost 15000000 B Weighted Av Contribution Margin 30.00% A/B Break Even Point 50000000 Allocation of BEP basis Sales Mix: Oil Changes 37500000 (BEP*75%) Brake Repair 12500000 (BEP*25%) 2 Desired Net Income 45000 Fixed Cost 75000 A Required Contribution Margin 120000 B Weighted Av Contribution Margin 30.00% A/B Break Even Point 400000 Allocation of BEP basis Sales Mix: Oil Changes 300000 (BEP*75%) Brake Repair 100000 (BEP*25%)

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