Question 5 / 16 marks Bill Braddock is considering opening a Fast 'n Clean Car Service Center. He estimates that the following costs will be incurred during his first year of operations: Rent $9,200, Depreciation on equipment $7,000, Wages $16,400, Motor oil $2.00 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 Fast 'n Clean Corporation a franchise fee of $1.10 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 14,000 $15,000 Bill Braddock anticipates that he can provide the oil change service with a filter at $25 each. Instructions (a) Using the high-low method, determine variable costs per unit and total fixed costs. /9 (b) Determine the break-even point in number of oil changes and sales dollars. /5 (c) Without regard to your answers in parts (a) and (b), determine the oil changes required to earn net income of $20,000, assuming fixed costs are $32,000 and the contribution margin per unit is $8. /2 Question 6 / 12 marks Trump Forest Corporation operates two divisions, the Timber Division and the Consumer Division. The Timber Division manufactures and sells logs to paper manufacturers. The Consumer Division operates retail lumber mills which sell a variety of products in the do-it-yourself homeowner market. The company is considering disposing of the Consumer Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2016 are presented below: Timber Division Consumer Division Total Sales $1,500,000 $500,000 $2,000,000 Cost of goods sold 900,000 350,000 1,250,000 Gross profit 600,000 150,000 750,000 Selling & administrative expenses 250,000 180,000 430,000 Net income $ 350,000 $ 130,000) $320.000 In the Consumer Division, 70% of the cost of goods sold are variable costs and 35% of selling and administrative expenses are variable costs. The management of the company feels it can save $45,000 of fixed cost of goods sold and $50,000 of fixed selling expenses if it discontinues operation of the Consumer Division. Instructions below: (a) Determine whether the company should discontinue operating the Consumer Division. /10 (b) If the company had discontinued the division for 2016, determine what net income would have been. /2