Question

Oriole Diesel owns the Fredonia Barber Shop. He employs 5 barbers and pays each a base rate of $1,510 per month. One of the barbers serves as the manager and receives an extra $580 per month. In addition to the base rate, each barber also receives a commission of $8.40 per haircut.

Other costs are as follows.

Advertising		$300	per month
Rent		$1,020	per month
Barber supplies		$0.45	per haircut
Utilities		$150	per month plus $0.15 per haircut
Magazines		$30	per month

Oriole currently charges $18 per haircut.

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

Total variable cost per haircut

Total fixed

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

Break-even point			haircuts
Break even sales		$

c. Determine net income, assuming 1,700 haircuts are given in a month.

Net income / (Loss)

$

Answer 1

a)

	Variable Cost per haircut	Fixed Cost per month
Base rate wages [$ 1,510 x 5 barbers]		$7,550
Manager's salary		$ 580
Commission	$8.40
Advertising		$300
Rent		$1,020
Barber Supplies	$0.45
Utilities	$0.15	$150
Magazines		$30
Total	$9	$9,630

Variable cost = $9 per haircut
Fixed Cost = $9,630 per month

b)

Revenue per haircut	$18
Total variable cost per haircut	$9
Contribution margin per haircut(18 - 9)	$9
Total Fixed	$9,630
Break- even point (9,630/9)	1,070	Haircuts Answer
Break- even point $ (1070 * 18)	$19,260	Answer

c)

No. of haircuts	1,700
Contribution margin(1,700 * 9)	$15,300
Total Fixed	$9,630
Net Income (15,300 - 9,630)	$5,670

Net Income = $5,670

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