Question

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

Answer 1

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.