Smith Jewelry Store sells 20 pieces of jewelry per day at an average price of $20 per piece. Assume Smith’s cost for the jewelry
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Answer:
<em><u>For Break Even Point</u></em>
Oil Change: $ 210,000
Brake repair: $ 90,000
<em><u>For target profit</u></em>
Oil Change: $ 350,000
Brake repair: $ 150,000
Explanation:
Now, we solve for
the target mix:
sales weight times contribution ratio
0.70 x 0.20 + 0.30 x 0.4 = 0.26
Now we solve the break even point for each service outlet:
Oil Change: 78,000 / 0.26 = 300,000 sales revenue
we multiply by the weight to know eahc type of serivce sales revenue
Oil Change: $ 300,000 x 0.7 = $ 210,000
Brake repair: $ 300,000 x 0.3 = $ 90,000
Now we solve for target profit:
(78,000 + 52,000) / 0.26 = 500,000
Oil Change: $ 500,000 x 0.7 = $ 350,000
Brake repair: $ 500,000 x 0.3 = $ 150,000