Question

# Roy services (Oil Change) vehicles in his garage. His lubricants cost him \$40 per vehicle. His...

Roy services (Oil Change) vehicles in his garage. His lubricants cost him \$40 per vehicle. His wages are \$120 per hour. He spends 20 minutes per vehicle. His garage rent is \$600 per month. He charges \$140 to service each vehicle. How many cars does he need to service to achieve Break Even Point?

a.       100

b.       10

c.       400

d.       Not possible to calculate

Selling price per unit = \$140

Lubricant cost per vehicle = \$40

Wage rate = \$120 per hour

Time spent per vehicle = 20 minutes

= 20/60 hours

= 1/3 hours

Wages per vehicle = Time spent per vehicle x Wage rate

= 120 x 1/3

= \$40

Variable cost per unit = Lubricant cost per vehicle + Wages per vehicle

= 40 + 40

= \$80

Fixed cost = Garage rent = \$600

Contribution margin per unit = Selling price per unit – Variable cost per unit

=140-80

= \$60

Break even point (units) = Fixed cost/Contribution margin per unit

= 600/60

= 10

10 cars need to service to achieve break even point.

Correct option is b.