Apple offers extended service contracts that provide repair coverage for its products. As you complete the following requirements, assume that Apple’s repair services department uses many of the company’s existing resources such as its facilities, repair machinery, and computer systems.

Required

1. Identify several of the variable mixed, and fixed costs that Apple’s repair services department is likely to incur in carrying out its services.

2. Assume that Apple’s repair service revenues are expected to grow by 25% in the next year. How would we expect the costs identified in part 1 to change, if at all?

3. Based on the answer to part 2, can Apple use the contribution margin ratio to predict how income will change in response to increases in Apple’s repair service revenues?