A one-person automobile oil change in rural Mississippi has a fixed overhead of $\$ 900.00$ per month. The variable cost per oil change $\$ 10.00$. The charge is $\$ 30.00$ for one oil change. If the owner/worker Joe Smith desires to have a contribution per month of $\$ 2,100.00$, the number of oil changes he should do per month is
A) 100
B) 300
C) 150
D) 75
E) none of the above

Question

Quizplus · Accepted Answer

To achieve a monthly contribution of $2,100, we first calculate the contribution margin per oil change, which is the charge per oil change minus the variable cost per oil change: $30 - $10 = $20. To cover the fixed overhead of $900 and achieve an additional contribution of $2,100, Joe needs a total contribution of $3,000 ($900 + $2,100). Dividing this total required contribution by the contribution margin per oil change gives the number of oil changes needed: $3,000 / $20 = 150.

A One-Person Automobile Oil Change in Rural Mississippi Has a Fixed