Question & Answer: PDQ Repairs has 200 auto-maintenance service outlets nationwide. It performs primarily two lin…..

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 25%. Brake repair represents 40% of its sales and provides a 45% contribution margin ratio. The company’s fixed costs are $15,590,000 (that is, $77,950 per service outlet).

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

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Oil changes		$
Brake repair		$

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Question & Answer: PDQ Repairs has 200 auto-maintenance service outlets nationwide. It performs primarily two lin..... 6

The company has a desired net income of $50,000 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		$
Brake repair		$

Expert Answer

1-	Weighted average contribution Margin
		Weight	contribution margin in %	weight*contribution margin
	Oil change	0.6	25	15
	brake repair	0.4	45	18

			weighted average contribution margin	33

	Break even point in sales	fixed cost/weighted average contribution margin	15590000/33%	47242424

		Weight	sales	Break even sales= weight*total sales
	Oil change	0.6	47242424	28345455
	brake repair	0.4	47242424	18896970

2-	Weighted average contribution Margin
		Weight	contribution margin in %	weight*contribution margin
	Oil change	0.6	25	15
	brake repair	0.4	45	18

			weighted average contribution margin	33

	break even sales with target profit	fixed cost+ target profit)/weighted average contribution margin	(77950+50000)/33%	387727.3
		Weight	sales	Break even sales= weight*total sales
	Oil change	0.6	387727.3	232636.4
	brake repair	0.4	387727.3	155090.9

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