1) Jim Wayman is considering opening a Kwik Oil Change Center. He estimates that the following costs will be incurred during his first year of operations: Rent $6,000, Depreciation on equipment $7,000, Wages $13,700, Motor oil $1.25 per quart. He estimates that each oil change will require 5 quarts of oil. Oil filters will cost $3.00 each. He must also pay The Kwik Corporation a franchise fee of $.95 per oil change since he will operate the business as a franchise. In addition, utility costs are expected to behave in relation to the number of oil changes as follows:

Number of Oil Changes	Utility Costs
4,000	$6,000
6,000	$7,300
9,000	$9,600
12,000	$12,600
19,000	$15,000

Mr. Wayman anticipates that he can provide the oil change service with a filter at $18.00 each.

Instructions: (a) Using the high-low method for utility costs, determine the variable and fixed costs for utilities. (b) Compute the total variable costs per oil change and total fixed costs (don't forget to include the variable and fixed utility costs determine in "a"). (c) Determine the break-even point in number of oil changes and sales dollars. (d) Without regard to your answers in parts (a), (b) and (c), determine the oil changes required to earn net income of $20,000, assuming fixed costs are $28,000 and the contribution margin per unit is $8.

2) The Gannon Company has budgeted sales revenues as follows:

	June	July	August
Credit sales	$27,000	$29,000	$18,000
Cash sales	18,000	51,000	39,000
Total sales	$45,000	$80,000	$57,000

Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.

Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are:

June $60,000 July 50,000 August 21,000

Other cash disbursements budgeted: (a) selling and administrative expenses of $9,500 each month, (b) dividends of $22,700 will be paid in July, and (c) purchase of a computer in August for $5,000 cash.

The company MUST maintain a minimum cash balance of $10,000 at the end of each month. The company borrows money from the bank at 9% per year interest if necessary to maintain the minimum cash balance of $10,000. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $10,000 of which none is borrowed.

Instructions: Prepare a cash budget for the months of July and August. Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory.