Question

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.

(a)

	Your answer is correct.

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

SHOW SOLUTION SHOW ANSWER
LINK TO TEXT	LINK TO VIDEO

Attempts: 1 of 5 used

(b)

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

LINK TO TEXT

LINK TO VIDEO

Answer 1

a)

Variable costs per haircut = Commission + Barber supplies + Utilities

= 4.50 + 0.30 + 0.20

= $5

Total monthly fixed costs = Barbers' salaries + Salary of manager + Advertising + Rent + Utilities + Magazines

= 1,250 x 4 + 500 + 200 + 1,100 + 175 + 25

= $7,000

b)

Contribution margin per unit = Selling price per unit – Variable cost per unit

= 10 - 5

= $5

Contribution margin ratio = Contribution margin per unit/Selling price per unit

= 5/10

= 50%

Break even point (units) = Fixed cost/Contribution margin per unit

= 7,000/5

= 1,400 haircuts

Break even sales in dollars = Fixed cost/Contribution margin ratio

= 7,000/50%

= $14,000