Question 8 You have decided to offer a mobile oil changing business, You have ha

Question

Question 8

You have decided to offer a mobile oil changing business, You have had

to borrow about $5000 to start. You have this loan over a 5 year period

and your payment will be $100 per month. Assume this is your only fixed cost.

You will charge $75 for the oil change. Your variable cost will average $25.

For a month, answer the following.

What is the fixed cost? Blank 1 (no decimals)

What is the break even volume? Blank 2 (no decimals)

In revenue, what is the break even for a month? Blank 3 (no decimals)

If you can do 100 oil changes per month, what will be your total revenue per month? Blank 4 (no decimals)

If you can do 100 oil changes per month, what will be your total expenses per month? Blank 5 (no decimals)

If you can do 100 oil changes per month, what will be your total profit per month? Blank 6 (no decimals)

Explanation / Answer

Solution

1) Fixed cost = $100

2) Break even volume = (Fixed cost)/(Selling price- variable cost) = (100)/(75-25) = 2

Break even revenue where total revenue = total cost

3) total cost = 25+100 = 125 = total revenue

4)Total revenue with 100 oil changes= 75*100 = 7500

5)Total expenses = 100 + 25*100 = 2600

6) Profit = 7500-2600 = 4900

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