Richard Casper owns the Fredonia Barber Shop. He employs five barbers and pays e

Question

Richard Casper owns the Fredonia Barber Shop. He employs five barbers and pays each a base rate of $1,000 per month. One of the barbers serves as the manager and receives an extra $500 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 $200 per month
Rent $900 per month
Barber supplies $0.30 per haircut
Utilities $175 per month plus $0.20 per haircut
Magazines $25 per month


Matt currently charges $10 per haircut.





Determine the variable cost per haircut and the total monthly fixed costs. (Enter variable cost per unit to 2 decimal places, e.g. 5.87.)

Variable costs $
Total fixed costs $







Compute the break-even point in units and dollars. (Round per unit costs to 2 decimal places, e.g. 5.87 and the answers to 0 decimal places, e.g. 125.)

Breakeven point in units _______ haircuts
Breakeven point in dollars $







Determine net income, assuming 1,900 haircuts are given in a month.

Explanation / Answer

Determine the variable cost per haircut and the total monthly fixed costs. (Enter variable cost per unit to 2 decimal places, e.g. 5.87.)

Variable costs       $6.60         
Total fixed costs $6,800

Commission                             $5.50 per hair cut
Barber Supplies                      $0.30 per hair cut
Utilities                                   $0.20 per hair cut
Total variable cost                    $6.00 per hair cut

Salaries ($1,000 x 5 + $500)     $5,500
Advertisement                            $200
Rent                                         $900
Utilities                                     $175
Magazines                                  $25
Total Fixed costs                   $6,800

Compute the break-even point in units and dollars. (Round per unit costs to 2 decimal places, e.g. 5.87 and the answers to 0 decimal places, e.g. 125.)

Contribution Margin = $10.00 - $6.00) = $4.00 per hair cut

Breakeven point in units      1,700 haircuts ($6,800 / $4.00)
Breakeven point in dollars   $17,000 (1,700 x $10)

Determine net income, assuming 1,900 haircuts are given in a month.
Contribution Margin 1,900 x $4.00    $7,600
Less : Fixed costs                            $6,800
Net Income                                        $800

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