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 60% of its sales and provide a contribution margin ratio of 15%. Brake repair represents 40% of its sales and provides a 40% contribution margin ratio. The company’s fixed costs are $15,680,000 (that is, $78,400 per service outlet).

The company has a desired net income of $51,000 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		$Enter a dollar amount
Brake repair		$Enter a dollar amount

Answer 1

· Requirement asked

A = (51000*200) + 15680000	Total contribution margin required	$25,880,000
B = 9% + 16%	Weighted Average CM Ratio	25%
C = A x B	Total Dollar Amount required to break even	$103,520,000
D = C x 60%	Dollar amount required for Oil Changes	$62,112,000	Answer
E = C x 40%	Dollar amount required for Brake Repairs	$41,408,000	Answer

--Working

Working		Oil Changes	Brake repair
A	CM Ratio	15%	40%
B	Sales Mix	60%	40%
C = A x B	Weighted Average CM Ratio	9.00%	16.00%