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.
(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. Strayer has a break-even point of 120,000 units. If the firm's sole product sells for $40 and
fixed costs total $480,000, the variable cost per unit must be:
(a) Separation of mixed costs:
($15,000 – $6,000) $9,000
Change in cost/Change in quantity: ————————— = ——— = $.90 per oil change
(14,000 – 4,000) 10,000
Variable costs: Fixed costs:
Oil (5 quarts × $2.00) $10.00 Rent $ 9,200
Filter 3.00 Depreciation 7,000
Franchise fee 1.10 Wages 16,400
Utility costs (variable) .90 Utility costs 2,400*
Total variable $15.00 Total $35,000
2. $36