Shelly is considering opening a 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 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

Shelly 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.

(b) Determine the break-even point in number of oil changes and sales dollars.