Reference no: EM132605450

Xyz company is considering opening a car center service. He estimates that the following costs will be incurred during his first year of operations: rent 9200, depreciation on equipment 7k, wages 16400, motor oil $2 per quart. He estimates that each oil change will require 5 quarts of oil. Oil filters will cost $3 each. He must also pay a franchise fee of $1.10 per oil change.

In addition utility costs Are expected to behave in relation to the number of oil changes as follows:

Number of oil changes.             Utility costs

4k                                           $6k

6k                                          $7300

9k                                          $9600

12k                                          $12600

14k                                          $15k

 

It's anticipated that oil change services cN be provided with a filter at $25 each.

Question 1: Using the high, -low method, determine variable costs per unit and total fixed costs.

Question 2: Determine the break-even point in number of oil changes and sales dollars.

Question 3: Without regard to your answers in part (a) & (b) determine the oil changes required to earn net income of $20k assuming fixed costs are $32k and the contribution margin per unit is $8.