Question
In: Accounting
Cullumber Diesel owns the Fredonia Barber Shop. He employs 6 barbers and pays each a base...
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) |
$ |
Solutions
Expert Solution
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.
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