Question 9 Qwik Service has over 200 auto-maintenance service outlets nationwide

Question

Question 9 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 $12,000,000 (that is, $60,000 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 LINK TO TEXT 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) Break even sale :

Oil change = 75% * 40000000 = $30000000

   Brake repair = 25% * 40000000 = $10000000

Note:-   weightage contribution margin ratio

For Oil change = 75% * 20%

= 15%

For Brake repair = 25% * 60%

= 15%

Total (company) break even sale = fixed cost / contribution margin

= 12000000 / 30%

= $40000000

2.)   Oil change = 75% * 350000 = $262500

Brake repair = 25% * 350000 = $87500

Note:- Company sale to achive desired profit = (60000 + 45000 )/ 30%

= 105000 / 0.30

= $350000

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