Vin Diesel owns the Fredonia Barber Shop. He employs 5 barbers and pays each a b

Question

Vin Diesel owns the Fredonia Barber Shop. He employs 5 barbers and pays each a base rate of $1,500 per month. One of the barbers serves as the manager and receives an extra $540 per month. In addition to the base rate, each barber also receives a commission of $5.77 per haircut. Other costs are as follows. Advertising Rent Barber supplies Utilities Magazines $230 per month 5980 per month $0.36 per haircut $170 per month plus $0.30 per haircut 530 per month Vin currently charges $11.43 per haircut. 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 Compute the break-even point in units and dollars. (Round answers to 0 decimal places, e.g. 1,250.) Break-even point Break-even point haircuts Determine net income, assuming 2,500 haircuts are given in a month. Net income (Loss)

Explanation / Answer

1a. Total Variable Cost per Haircut

1b. Total Monthly Fixed Cost

2a. Break - Even Point (Units) = Fixed Cost / Contribution Margin per unit ,

(Contribution Margin Per unit = Selling Price per unit - Variable Cost per unit)

= 9,450 / (11.43 - 6.43) = 9,450 / 5

= 1890 haircuts

2b. Break - Even Point ($) = Break - Even point in Units * Selling Price Per Unit

= 1890 * 11.43

= $21,602.7 rounded to $21,603

Or

= Fixed Cost / Contribution Margin Ratio ,

( Contribution Margin Ratio = Contribution Margin / Sales Price)

= 9,450 / (5/11.43)% = 9,450 / 43.75%

= $ 21,600

3. Calculation of Net Income at 2500 hair-cuts

Particulars Amount ($) Barber's Commission 5.77 Barber Supplies 0.36 Utilities 0.30 Total Variable Cost 6.43

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