Christopher Brooks just finished interviewing the last candidate for his new sal

Question

Christopher Brooks just finished interviewing the last candidate for his new salon. He is hoping to hire
six estheticians, professionally trained staff who could provide a wide variety of services including
relaxation massage, facials, manicures and pedicures.
Before he bought the property and set up his company, Christopher did a lot research. He knows there
is a growing demand for the services that the Brooks Salon can offer and he is excited about the
opportunity to launch his own business.
Christopher's wife, Jennifer, helped him compile a lot of data about the prices and services offered by
other salons in the area by going to each of the three existing businesses for services over the past year.
She laughed as she explained that was her contribution to the business. " Dirty job, but someone has to
do it!"
One thing Jennifer noticed in her research was that customers liked going to the same esthetlcian and
may change salons if the person leaves. To reduce the risk of losing staff to another salon, Christopher
plans to offer his staff a starting salary of $25 with the expectation that they could work up to 40 hours
each week. That would give staff an annual base salary of approximately $50,000 before gratuities.
The salon will be open six days a week with each employee working five of those six days. Christopher
hopes to be able to have at least five estheticians working each day, allowing each employee to have a
set day off in addition to Monday when the salon will be closed. This will give the salon a maximum of
240 direct labour hours per week. Staff will receive the same hourly rate no matter what service they
provide.
Massages will be offered in 30 minute and 60 minute sessions. Christopher believes that the salon can
make more money on the hour-long sessions and has priced those sessions at what he calls a discounted
rate to entice customers to book the longer sessions.

30 30 minute 60minute relaxation relaxation massage 85.00 Facia Manicure Pedicure 45.00 massage Revenue 55.00 100.00 65.00 Diect labour Direct material Variable overhead 12.50 5.00 6.25 25.00 5.00 12.50 25.00 30.00 12.50 18.75 10.00 9.38 25.00 10.00 12.50 With a limited amount of direct labour hours available each week, Christopher wants to know if he is correct in his belief that the company will make the most money throught preparing advertisements for the opening of the salon and wants to focus on the services t the most income for the estheticians' time he one hour sessions. He is hat will make Christopher does not want to eliminate any services. His wife's research indicates that people are looking for a full service salon. He may hire additional staff at a lower rate to provide service on some treatments so his regular staff can focus on the things that provide the company with the highest contribution margin His preliminary estimates are that the demand for the 30 minutes massage will be 90 sessions per wee and that the demand for the hour long massage will be 60 sessions per week. His wife thinks the salon can do a good business in manicures and pedicures and has suggested Christopher expect to do 100 manicures and 75 pedicures each week. They estimate the demand for facials may fluctuate dependin on the time of year but to start, they expect to see 55 sessions per week Required Determine what services will provide the salon with the highest contribution margin considering the limited number of direct labour hours each week. Is Christopher correct in his belief that hour long sessions will be the most profitable? If the company hires part-time staff at $17.50 per hour, determine how many hours they may have to work each week to meet expected demand for service What would the weekly income be if the company chose to maximize net income using part time staff for the services with the lowest contribution margin per direct labour hour? What qualitative issues should Christopher consider in his plans? 1. 2. 3. 4.

Explanation / Answer

Answer : 1

Christopher along with his wife wants to start a salon business, for which he is in hiring process for the staff who can support the salon business as per his planning. Christopher and his wife have carried out various analyses for the business and they have the action plan for the same.

The salon business needs to provide all the services, as customer expects to have all services in the salon station, then only they wish to visit the salon. Foe less number of services, there is risk that customer will have low interest for salon visit.

The services will provide the Salon with highest contribution margin considering the limited numbers of direct labor hours each week are as below

Activities

30 min

Massage

60 min Massage

Facial

Manicure

pedicure

Revenue

55

85

100

45

65

Labor

12.5

25

25

18.75

25

material

5

5

30

10

10

variable

6.25

12.5

12.5

9.38

12.5

Total Input Cost

23.75

42.5

67.5

38.13

47.5

Profit

31.25

42.5

32.5

6.87

17.5

So based on this matrix, the highest contribution to the salon business will be from

Yes, Christopher is correct in his assumption that the hour long session of massage will be the most profitable business for the salon, as it will provide the highest margin contribution for the business. The 60 minute massage business initiative wil provide him the highest margin of 42.5, which is highest in all the other business activities at the salon.

Activities

30 min

Massage

60 min Massage

Facial

Manicure

pedicure

Revenue

55

85

100

45

65

Labor

12.5

25

25

18.75

25

material

5

5

30

10

10

variable

6.25

12.5

12.5

9.38

12.5

Total Input Cost

23.75

42.5

67.5

38.13

47.5

Profit

31.25

42.5

32.5

6.87

17.5

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