Exercise 168

Bill Braddock is considering opening a Fast n Clean Car Service Center. He estimates that the following costs will be incurred during his first year of operations: Rent $9,200, Depreciation on equipment $7,000, Wages $16,400, Motor oil $2.00 per quart. He estimates that each oil change will require 5 quarts of oil. Oil filters will cost $3.00 each. He must also pay The Fast n Clean Corporation a franchise fee of $1.10 per oil change, since he will operate the business as a franchise. In addition, utility costs are expected to behave in relation to the number of oil changes as follows:

Number of Oil Changes Utility Costs 4,000 $6,000 6,000 $7,300 9,000 $9,600 12,000 $12,600 14,000 $15,000

Bill Braddock anticipates that he can provide the oil change service with a filter at $25 each.

Using the high-low method, determine variable costs per unit and total fixed costs. (Round variable cost to 2 decimal places, e.g. 15.25.)

Variable cost $ per unit Fixed cost $

Determine the break-even point in number of oil changes and sales dollars.

Break-even point in units oil changes Break-even point in sales $

Without regard to your answers in parts (a) and (b), determine the oil changes required to earn net income of $20,000, assuming fixed costs are $32,000 and the contribution margin per unit is $8.

Break-even point in units oil changes

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