Question

Ned's New Wave Barber Shop specializes in modern unisex haircuts. The only service available at Ned's is a “20-minute” haircut for which the customer is charged $10.The shop has five (5) barbers. (Ned does not work in the shop and, as owner/entrepreneur, he takes no salary.) Each barber is paid an annual salary of $18,000. All equipment including store fixtures and barbering equipment is leased on an annual basis at $4,500 per year. Building space is leased at the rate of $500 per month (or $6,000 per year). Ned is concerned about the shop’s cost structure and seeks your advice.

Assume a change in the lease agreement so that the landlord receives $100/monthly rent + 10% of haircut revenue

What is the new Contribution margin per haircut?

What is the new annual break-even point in haircuts?

Answer 1