Question
In: Accounting
Oriole Diesel owns the Fredonia Barber Shop. He employs 5 barbers and pays each a base...
Oriole Diesel owns the Fredonia Barber Shop. He employs 5
barbers and pays each a base rate of $1,510 per month. One of the
barbers serves as the manager and receives an extra $580 per month.
In addition to the base rate, each barber also receives a
commission of $8.40 per haircut.
Other costs are as follows.
| Advertising | $300 | per month | |
| Rent | $1,020 | per month | |
| Barber supplies | $0.45 | per haircut | |
| Utilities | $150 | per month plus $0.15 per haircut | |
| Magazines | $30 | per month |
Oriole currently charges $18 per haircut.
1) Compute the break-even point in units and dollars.
2) Determine net income, assuming 1,700 haircuts are given in a
month.
Solutions
Expert Solution
Breakeven units = 1070 units
Net income at 1700 units = $5,670
Working
| A | Sale Price per unit | $ 18.00 |
| B | Variable Cost per Unit (0.45+0.15+8.4) | $ 9.00 |
| C=A - B | Unit Contribution | $ 9.00 |
| D | Total Fixed cost ((1510*5)+580+300+1020+150+30) | $ 9,630.00 |
| E=D/C | Breakeven point in units | 1,070 |
.
| Sales (1700*18) | $ 30,600.00 |
| Variable cost (1700*9) | $ 15,300.00 |
| Contribution margin | $ 15,300.00 |
| Total Fixed costs | $ 9,630.00 |
| Net income | $ 5,670.00 |
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