Question

Vin Diesel owns the Fredonia Barber Shop. He employs 7 barbers and pays each a base rate of $1,640 per month. One of the barbers serves as the manager and receives an extra $510 per month. In addition to the base rate, each barber also receives a commission of $5.81 per haircut.

Other costs are as follows.

Advertising		$200	per month
Rent		$960	per month
Barber supplies		$0.31	per haircut
Utilities		$185	per month plus $0.30 per haircut
Magazines		$30	per month

Vin currently charges $11.42 per haircut.

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

a. Total variable cost per haircut __$$

b. Total Fixed __ $$

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

a. Break point __ haircuts.

b. Break even point __

3. Determine net income, assuming 2,380 haircuts are given in a month.

a. Net Income/(Loss) __

Answer 1

Ans.1a	Total variable cost per haircut = Commission + Barber supplies + Utilities per haircut
		5.81 + 0.31 + 0.30
		6.42
Ans.1b	Total fixed cost = 13365
	*Calculation:
	Basic salaries (1640*7)	11480
	Extra salary	510
	Advertising	200
	Rent	960
	Utilities	185
	Magazines	30
	Total	13365
Ans.2a	Break-even point in units     =     Total fixed cost / Contribution margin per unit
		13365 / 5
		2673 haircuts
	Contribution margin per unit = Current charges per haircut - Variable cost per haircut
			11.42 - 6.42
			5
Ans.2b	Break-even point in dollars   =   Break even point per haircut * Current charges per haircut
			2673 * 11.42
			30525.66
			or   30526
Ans.3a	Net Loss    =   1465
	*Calculation:
	Revenue (11.42*2380)	27179.6
	Less: Variable cost (6.42*2380)	15279.6
	Contribution margin	11900
	Less: Total fixed cost	13365
	Net income (loss)	-1465