Qwik Repairs has over 200 auto-maintenance service outlets nationwide. It provid
ID: 2600200 • Letter: Q
Question
Qwik Repairs 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 62% of its sales and provide a contribution margin ratio of 21%. Brake repair represents 38% of its sales and provides a 60% contribution margin ratio. The company’s fixed costs are $15,734,000 (that is, $78,670 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 3 decimal places e.g. 0.255 and round final answers to 0 decimal places, e.g. 2,510.)
(b) The company has a desired net income of $60,915 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? (Use Weighted-Average Contribution Margin Ratio rounded to 3 decimal places e.g. 0.255 and round final answers to 0 decimal places, e.g. 2,510.)
Explanation / Answer
Oil 62% x CM 20% + Brakes 38% x CM 59% = = 12.4+22.4.
Total CM 34.8%
Breakeven sales = Fixed cost/contribution margin
=15,734,000 / .348
= $ 45,212,643.67
Breakeven sales of Oil 62% = Total Breakeven sales*percent of Oil in total sales
=$ 28,031,839.08;
Breakeven sales of Brakes 38% = Total Breakeven sales*percent of Brakes in total sales
=$ 17,180,804.59
(b) (Fixed Cost+ target Profit)/ weighted average contribution Margin
= ($78,670 +$ 60915)/0.348
=$ 401,106.32
Oil = $401,106.32*0.62= $ 248,685.92
Brake = $401,106.32*0.38 = $152,420.40
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