Question

Problem 5-2A a-b,d (Video)

Vin Diesel owns the Fredonia Barber Shop. He employs 4 barbers and pays each a base rate of $1,250 per month. One of the barbers serves as the manager and receives an extra $500 per month. In addition to the base rate, each barber also receives a commission of $4.50 per haircut.

Other costs are as follows.

Advertising		$200	per month
Rent		$1,100	per month
Barber supplies		$0.30	per haircut
Utilities		$175	per month plus $0.20 per haircut
Magazines		$25	per month

Vin currently charges $10 per haircut.

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		$enter a dollar amount rounded to 2 decimal places
Total fixed		$enter a dollar amount

Compute the break-even point in units and dollars.

Break-even point		enter the Break-even point in units	haircuts
Break even sales		$enter the Break-even sales in dollars

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Determine net income, assuming 1,600 haircuts are given in a month.

Net income / (Loss)

$enter net income in dollars

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Answer 1

Variable cost per haircut = Barber supplies + Utilities + Commission

Variable cost per haircut = $0.30 + 0.20 + 4.50 = $5

Fixed cost:

Barber wages (4*$1,250)	$5,000
Manager salary	500
Advertising	200
Rent	1,100
Utilities	175
Magazines	25
Total fixed costs	$7,000

Break even points in units = Total fixed costs / Contribution margin per unit

Break even points in units = $7,000 / $5($10-5) = 1,400 units

Break even sales in dollars = 1,400 * $10 = $14,000

Net income in dollars = (1,600 * $5) - 7,000

Net income in dollars = $8,000 - 7,000 = $1,000