Answer:
A. The answer is:
Oil-related revenue = 0.75 x 40,000,000 = $30,000,000;
Repair-related revenue = 0.25 x 40,000,000 = $10,000,000
B. The answer is:
Oil-related revenue = 0.75 x 350,000 = $262,500;
Repair-related revenue = 0.25 x 350,000 = $87,500.
Explanation:
A.
Denote X is the total revenue Qwik Service has to earn.
We have:
Oil charge-related revenue: 0.75X; Oil charge-related margin 0.2 x 0.75X = 0.15X
Brake repair-related revenue: 0.25X; Brake repair-related margin: 0.25X x 0.6 = 0.15X.
=> Total contribution margin = 0.15X + 0.15X = 0.3X
To meet break-even, the total contribution margin should be equal to fixed cost or: 0.3X = 12,000,000 <=> X = $40,000,000
=> Oil-related revenue = 0.75 x 40,000,000 = $30,000,000;
Repair-related revenue = 0.25 x 40,000,000 = $10,000,000.
B.
The note Y is the total revenue per one outlet.
At one outlet, revenue and margin will be:
Oil charge-related revenue: 0.75X; Oil charge-related margin 0.2 x 0.75X = 0.15X
Brake repair-related revenue: 0.25X; Brake repair-related margin: 0.25X x 0.6 = 0.15X.
=> Total contribution margin = 0.15X + 0.15X = 0.3X
To meet net income target of $45,000, the total contribution margin should be equal to fixed cost of $60,000 and delivering $45,000 net income or: 0.3X = 45,000 + 60,000 <=> X = $350,000.
=> Oil-related revenue = 0.75 x 350,000 = $262,500;
Repair-related revenue = 0.25 x 350,000 = $87,500.
