Chuck Justice operates a Competition Go-Kart racing track on his 40-acre ranch in Monterey County California, just a short distance from world famous Laguna Seca.

The facility includes a 1.5-mile track, 60 pitstop work stations each with a covered shop/work area, piped in pressurized air, deep sinks with running water and cleaning solvent, 110/220 electrical service, and benches for working on, tuning up, changing engines and tires, etc. on the Go-Karts.

Fixed Operating Costs are as follows: Depreciation on the facilities $7,500 per year. Real estate taxes $3,300 per year. Utilities average $265 per month. General track and facility maintenance averages $180 per month. Chucks son is employed to operate and maintain the facilities at an annual salary of $36,000.

Variable Operating Costs are as follows: Engineering students from Monterrey Peninsula College work as interns. One engineering student can be assigned to as many as 6 pitstop workstations to trouble shoot and provide ideas regarding sprocket ratios, engine issues, track temperature/tire pressure, etc. As an intern, they are paid $20 per work station per day.

The pitstop work stations rent for $35 per Go-Kart owner per day.

Instructions

1. Determine the number of pitstop work station rentals and revenue Chuck needs to break even using the contribution margin technique.
2. If the current level of pitstop workstation rentals is 4,345, by what percentage can workstation rentals decrease before Chuck should be concerned about having a net loss?

3. Chuck is considering upgrading the track to attract more business and increase prices. This will add an additional $1,500 per month to the current fixed costs. Chuck feels he can increase the daily pitstop workstation space to $40 per Go-Kart owner per day. Determine the number of pitstop workstation rentals and the amount of revenue Chuck needs to break even if the changes are made.

Part 2:

Chuck Justice Go-Kart Engine Works, inc. provided the following information concerning their two high performance Go-Kart engines thay manufacture and sell online:

Justice Jolt Justice Jump

Contribution margin per engine $92 $117

Machine hours required per engine 2.5 hours 3.25 hours

1. Compute the contribution margin per engine of limited resource for each product.
2. Which product should Hunt tell its sales personnel to push to customers?
3. List qualitative factors the Chucks company should consider.