Jim Wright is allowing for opening a Kwik Oil Change Center. He evaluates that the subsequent costs will be incurred during his first year of operations: Rent $6000, Depreciation on equipment $7000, Wages $16,400,Motor oil $1.80 per quart. He evaluates that each oil change will need 5 quarts of oil. Oil filters will cost $3.00 each. He must also pay the Kwik Company a franchise fee of $1.40 per oil change, since he will operate the business as a franchise. In addition, utility costs are predictable to behave in relation to the number of oil changes as given:
Number of Oil Changes Utility Costs
4000 6000
6000 7300
9000 9600
12000 12600
19000 15000
Mr. Wright anticipates that he can give the oil change service with a filter at $20.00 each.
(a) Using the high low method, evaluate utility costs. In addition, evaluate the variable costs per unit and total fixed costs.
(b) 1. Evaluate the breakeven point in number of oil changes and sales dollars.
2. If the current level of oil changes is 6600, by what percentage will the number of oil changes decrease before Jim has to worry about having a net loss?