Question

BrookeBrooke

Motors is a small car dealership. On​ average, it sells a car for

$ 27 comma 000$27,000​,

which it purchases from the manufacturer for

$ 23 comma 000.$23,000.

Each​ month,

BrookeBrooke

Motors pays

$ 48 comma 200$48,200

in rent and utilities and

$ 68 comma 000$68,000

for​ salespeople's salaries. In addition to their​ salaries, salespeople are paid a commission of

$ 600$600

for each car they sell.

BrookeBrooke

Motors also spends

$ 13 comma 000$13,000

each month for local advertisements. Its tax rate is​ 40%.

Requirements

1.	How many cars must BrookeBrooke Motors sell each month to break​ even?
2.	BrookeBrooke Motors has a target monthly net income of $ 51 comma 000$51,000. What is its targeted monthly operating​ income? How many cars must be sold each month to reach the target monthly net income of $ 51 comma 000$51,000​?

Requirement 1. How many cars must

BrookeBrooke

Motors sell each month to break​ even

Answer 1

• Workings

A	Sale price per car	$            27,000.00
B	Variable cost per car (manufacturing)	$            23,000.00
C	Sales Commission	$                  600.00
D = A - B - C	Contribution margin per car	$              3,400.00

Fixed Costs:
Rent & Utilities	$            48,200.00
Salesperson's salaries	$            68,000.00
Advertisement	$            13,000.00
Total Fixed Cost	$          129,200.00

• Requirement 1

A	Total Fixed Cost	$          129,200.00
B	Contribution margin per car	$              3,400.00
C = A/B	No. of cars to be sold to Break Even	38 cars = Answer

• Requirement 2

A	Target monthly Net Income	$            51,000.00
B = A/(100% - 40%) or A/60%	Target Monthly Operating Income	$            85,000.00 = Answer (i)
C	Total Fixed Cost	$          129,200.00
D = B+C	Total Contribution margin required	$          214,200.00
E	Contribution margin per car	$              3,400.00
F = D/E	No. of units to be sold to earn target net income	63 cars = Answer (ii)