Fast as Lightning is an oil change service drive-through that charges each custo
ID: 2461162 • Letter: F
Question
Fast as Lightning is an oil change service drive-through that charges each customer$24.00 for an oil and ±lter change service. Fast as Lightning has found that it costs itsbusiness $16.00 per oil and ±lter change. Monthly ±xed costs are $44,000; current sales are8,000 services.a. Compute the breakeven sales in units.b.Compute Fast as Lightning's margin of safety in units and sales dollars.c.Compute Fast as Lightning's margin of safety as a percentage.d.Compute Fast as Lightning's operating leverage factor.e.Compute Fast as Lightning's % of operating income decline if sales fall by 18%
Explanation / Answer
1)Break even sales in units= Fixed cosrt/(sales-variable)
=44,000/(24-16)=5,500
2)Amrgin of safety in units= current sales-breakeven sales/selling price per unit
=(8000-5500)*24/24=2500
Margin of safety in dollars= sales actual-breakeven sales
=(8000-5500)*24=$60,000
c)Margin of safety as (%)= curren sales-break even point/current sales= (8000-5500)/8000=31.25%
d)operating leverage factor= contribution margin/net income
=(24-16)*8000/[(24-16)*800-44000]=3.2
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