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 20%. Brake repair represents 20% of its sales and provides a 35% contribution margin ratio. The company’s fixed costs are $15,732,000 (that is, $78,660 per service outlet).

Calculate the dollar amount of each type of service (Oil Change and Repair Charges) that the company must provide in order to break even.

The company has a desired net income of $52,992 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?

Answer 1

• Working

Working		Oil Changes	Brake repair
A	CM Ratio	20%	35%
B	Sales Mix	80%	20%
C = A x B	Weighted Average CM Ratio	16.00%	7.00%

• [1]

A	Total Fixed expenses	$15,732,000
B = 16% + 7%	Weighted Average CM Ratio	23%
C = A/B	Total Dollar Amount required to break even	$68,400,000
D = C x 80%	Dollar amount required for Oil Changes	$54,720,000	Answer
E = C x 20%	Dollar amount required for Brake Repairs	$13,680,000	Answer

• [2]

A = (52992*200) + 15732000	Total contribution margin required	$26,330,400
B	Weighted Average CM Ratio	23%
C = A x B	Total Dollar Amount required to break even	$114,480,000
D = C x 80%	Dollar amount required for Oil Changes	$91,584,000	Answer
E = C x 20%	Dollar amount required for Brake Repairs	$22,896,000	Answer