Qwik Service Has Over 200 Auto-Maintenance Service Outlets Nationwide

question 14

Essay

Qwik Service has over 200 auto-maintenance service outlets nationwide. It provides primarily two lines of service: oil changes and brake repair. Oil change-related services represent 75% of its sales and provide a contribution margin ratio of 20%. Brake repair represents 25% of its sales and provides a 60% contribution margin ratio. The company's fixed costs are $15,000,000 (that is, $75,000 per service outlet).
Instructions
(a) Calculate the dollar amount of each type of service that the company must provide in order to break even.
(b) The company has a desired net income of $45,000 per service outlet. What is the dollar amount of each type of service that must be provided by each service outlet to meet its target net income per outlet?

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Definitions:

Quick Ratios

A financial metric used to gauge a company's liquidity by comparing its most liquid assets, without inventory, to its current liabilities.

Current Ratios

A financial metric used to measure a company's ability to pay its short-term obligations with its current assets.

Days To Sell

An estimate of the average number of days it takes for a company to sell its inventory.

Inventory

A complete list of items such as property, goods in stock, or the contents of a building.