Question

Blossom Diesel owns the Fredonia Barber Shop. He employs 6 barbers and pays each a base rate of $1,470 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 $8.45 per haircut.

Other costs are as follows.

Advertising		$290	per month
Rent		$920	per month
Barber supplies		$0.45	per haircut
Utilities		$190	per month plus $0.10 per haircut
Magazines		$20	per month

Blossom currently charges $15 per haircut.

1.) 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		$
Total fixed		$

2.)

Compute the break-even point in units and dollars.

Break-even point			haircuts
Break even sales		$

3.)

Determine net income, assuming 2,000 haircuts are given in a month.

Net income / (Loss)

$

Answer 1

1.

Variable cost per haircut = Commission + Barber supplies + Utilities

= $8.45 + $0.45 + $0.10

= $9.00

Total Fixed costs = Salaries + Extra salary + Advertising + Rent + Utilities + Magazines

= (6 * $1,470) + $500 + $290 + $920 + $190 + $20

= $8,820 + $500 + $290 + $920 + $190 + $20

= $10,740

2.

Contribution margin per unit = Sales price - Variable cost per unit

= $15.00 - $9.00

= $6.00

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

= $10,740 / $6.00

= 1,790 units

Break even points in dollar = Break even points in units * sales price

= 1,790 units * $15.00

= $26,850

3.

Sales ($15.00 * 2,000)	$30,000
(-) Variable cost ($9.00 * 2,000)	$18,000
Contribution margin	$12,000
(-) Fixed costs	$10,740
Net income	$1,260