Question

Carla Vista Diesel owns the Fredonia Barber Shop. He employs 5 barbers and pays each a base rate of $1,480 per month. One of the barbers serves as the manager and receives an extra $510 per month. In addition to the base rate, each barber also receives a commission of $5.50 per haircut.

Other costs are as follows.


Advertising $220 per month

Rent $980 per month

Barber supplies $0.36 per haircut

Utilities $180 per month plus $0.24 per haircut

Magazines $20 per month


Carla Vista currently charges $11.00 per haircut.


a.) Determine the variable costs per haircut and the total monthly fixed costs. (Round variable costs to 2 decimal places, e.g. 2.25.)


Total variable cost per haircut $ ______


Total fixed $ ______



b.) Compute the break-even point in units and dollars.


Break-even point _______ haircuts


Break-even sales $ _______



c.) Determine net income, assuming 2,420 haircuts are given in a month.


Net income / (Loss) $ _______

Answer 1

(a) variable: $6.10; fixed: $9,310

(b) break-even: 1900 haircuts; $20,900 sales

(c) net income: $2,548

Explanation:

(a) The fixed costs are anything not given as "per haircut." Their total seems to be ...

fixed expense = 5×1480 +510 +220 +980 +180 +20 = 9310

variable expense = 5.50 +0.36 +0.24 = 6.10

Variable costs per haircut are $6.10; monthly fixed costs are $9,310.

__

(b) The break-even point will be the number of haircuts that makes revenue equal to expenses. If that number is represented by n, revenue is 11n and expenses are 6.10n+9310. Solving for n, we find ...

11n = 6.10n +9310

4.90n = 9310 . . . . . . subtract 6.10n

n = 9310/4.90 = 1900 . . . . . . . haircuts to break even

11n = $11·1900 = $20,900 . . . break-even sales

__

(c) We found in part (b) that each haircut contributes $4.90 to net income. So, the profit from 2420 haircuts will be the contribution margin for all of those haircuts that are more than the 1900 required to pay fixed expenses.

$4.90 × 520 = $2,548 . . . . net income