Question

PDQ Repairs has 200 auto-maintenance service outlets nationwide. It performs primarily two lines of service: oil changes and brake repair. Oil change–related services represent 80% of its sales and provide a contribution margin ratio of 25%. Brake repair represents 20% of its sales and provides a 35% contribution margin ratio. The company’s fixed costs are $15,660,000 (that is, $78,300 per service outlet).

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 2 decimal places e.g. 0.25 and round final answers to 0 decimal places, e.g. 2,510.) Oil changes $ Brake repair $ LINK TO TEXT

The company has a desired net income of $50,004 per service outlet. What is the dollar amount of each type of service that must be performed by each service outlet to meet its target net income per outlet? (Use Weighted-Average Contribution Margin Ratio rounded to 2 decimal places e.g. 0.25 and round final answers to 0 decimal places, e.g. 2,510.) Oil changes $ Brake repair $

Answer 1

Answer- The dollar amount of each type of service that the company must provide in order to break even - Oil Change = $232000.

Brake Repair = $58000.

Explanation- Weighted average contribution margin ratio =Contribution margin ratio* Sales mix percentage

= ($25%*80%)+(20%*35%)

= 20%+ 7%  

= 27%

Where- Break-even point in dollars = Fixed costs/ Weighted average contribution margin ratio

= $78300/27%

= $290000

Where- Break-even point in dollars –Break-even point in dollars* Sales mix

Oil Change   = $290000*80% = $232000

Brake Repair = $290000*20%=    $58000

Answer- The dollar amount of each type of service that must be performed by each service outlet to meet its target net income per outlet- Oil Change = $380160.

Brake Repair = $95040.

Where- Amount of sales in dollars to achieve target income = (Fixed costs+ Target income)/ Weighted average contribution margin ratio

= ($78300+$50004)/27%

= $475200

Where- Sales in dollars each type of service = Sales in dollars* Sales mix

Oil Change   = $475200*80% = $380160

Brake Repair = $475200*20%=   $95040