Question

Cullumber Diesel owns the Fredonia Barber Shop. He employs 6 barbers and pays each a base rate of $1,600 per month. One of the barbers serves as the manager and receives an extra $520 per month. In addition to the base rate, each barber also receives a commission of $6.00 per haircut.

Other costs are as follows.

Advertising		$220	per month
Rent		$970	per month
Barber supplies		$0.49	per haircut
Utilities		$180	per month plus $0.31 per haircut
Magazines		$30	per month

Cullumber currently charges $12.80 per haircut.

1） 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		$

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

Break-even point			haircuts
Break even sales		$

3） Determine net income, assuming 2,880 haircuts are given in a month.

Net income / (Loss)

$

Answer 1

Ans. 1

Determine the variable costs per haircut and the total monthly fixed costs.

Total variable costs per haircut	$6.80
Total monthly fixed costs	$11,520

Variable costs per haircut

Particulars	Cost per haircut
Barber commission	$6.00
Barber supplies	$0.49
Utilities	$0.31
Total variable costs per haircut	$6.80

Fixed cost per month

Particulars	Cost per month
Barber's salary ($1,600 x 6)	$9,600
Extra manager salary	$520
Advertising	$220
Rent	$970
Utilities	$180
Magzine	$30
Total monthly fixed costs	$11,520

Ans. 2

Compute the break-even point in units and dollars.

Break even point in units	1,920 haircuts
Break even point in dollars	$24,576

Contribution margin

	Cost per unit
Selling price per haircut	$12.80
Variable cost	$(6.80)
Contribution margin	$6.00

Break even point in units=Total fixed cost / Contribution margin per unit

Break even point in units=$11,520 / $6.00

Break even point in units=1,920 haircuts

Break even point in dollars=Break-even points in units x Price per haircut

Break even point in dollars=1,920 haircuts x $12.80

Break even point in dollars=$24,576

Ans. 3

Determine net income, assuming 2,880 haircuts are given in a month.

Particulars	Amounts
Selling Price (2,880 haircuts x 12.80)	$36,864
Less:- Variable Cost (2,880 haircuts x 6.80)	$(19,584)
Less:- Total monthly fixed costs	$(11,520)
Net income / (Loss)	$5,760

Net income for month is $5,760.