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Susan is considering opening a Fast 'n Clean Car Service Center. She estimates that the following costs will be incurred during his first year
Susan is considering opening a Fast 'n Clean Car Service Center. She estimates that the following costs will be incurred during his first year of operations: Rent $9,200, Depreciation on equipment $7,000, Wages $16,700, Motor oil $2.00 per quart. She estimates that each oil change will require 5 quarts of oil. Oil filters will cost $3.00 each. She must also pay The Fast 'n Clean Corporation a franchise fee of $1.10 per oil change, since she 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: Utility Costs Number of Oil Changes 4,000 $ 6,000 6,000 9,000 12,000 $ 7,300 $ 9,600 $12,600 $15,000 14,000 Susan anticipates that she 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. (7 marks) (b) Determine the break-even point in number of oil changes and sales dollars. (3 marks) (c) Determine the oil changes required to earn net income of $70,000. (3 marks) (d) If the utility cost at level of 12,000 is $11,500 instead of $12,600, explain how this would affect the breakeven point in number of oil changes and sales dollars. (3 marks)
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