Question

Eastern Motors Auto Dealership wanted to estimate the average CLV over a 5 year time horizon of a customer who purchases a new vehicle. The average vehicle sells for $26,400 and has a margin of 12%. Based on historical averages, 79% of people buying a new vehicle at Eastern will return for service 7 times over the next 5 years. Though it varies considerably, Eastern generates approximately $86 in margin on each service visit after accounting for parts and direct labor costs.

Not including service, what is the average dollar margin for each new vehicle sold?

Answer 1

According to the above question they get a 12% margin on each vehicle sold

and average selling price of a car is $26400

hence the dollar margin in each car is $26400*12%/100%

i.e,26400*12/100 = $3168   

there can be a difficulty in understanding which one to take as base as they have to mentioned it explicitly but it is implied that the base shall be taken as sales since the gross profit ratio has been associated with the the selling price of the product

when the sales are considered as the base the simplest way to calculate percentage is by

cost (difference between the two)

profit 12( as it is the percentage given)

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sales 100 (base is always 100)

the service margin is not calculated as the question requires