Question

22. Wisdom Clarke is a local stylist who operates her own mobile stylist business in the Bushwick area of Brooklyn. The total fixed costs for running the company car and her wages are $4,500 per month. The price for a haircut is $25 with a variable cost of $12 per cut. In a typical month, Wisdom makes 300 cuts. Due to her success and low competition, she is considering a 5% price increase to help grow her business (a) Assuming no changes in her variable or fixed costs, what would be the %BE and the unit BE required to be profitable? [5 points] (b) Fortunately for Wisdom, since she's been doing this for a while, she's managed to identify a way to reduce variable costs by $1.25 per cut, what would be her %BE and unit BE gyen this new informators ports (c) Wisdom is also considering an expansion into the next neighborhood to increase her territory. However, she would need a new car and some new equipment. She estimates that it would require incremental semi- fixed costs of $13,200 per year (i] Calculate the BE sales volume required (to the nearest whole unit) to recover the incremental investment. I5 points) (ii) Calculate the %BE sales change AND the unit BE to account for BOTH the 5% price increase and the incremental fixed costs. I5 points (d) Complete the Breakeven Sales Change Summary Chart for Wisdom. [5 points)

Answer 1

a- Break Even Unit= Fixed Cost/ Price-Variable cost= 4500/25-12= 4500/13=346. from present 300 units, required unit for profitable= 346/300-1=15.38% more.

b-- Break Even Unit= Fixed Cost/ Price-Variable cost= 4500/25-10.75= 4500/14.25=316. from present 300 units, required unit for profitable= 316/300-1=5.31% more.

c-i-Sales volume required= 13,200/25-12=13200/13=1015

ii= BE= 4500+13,200/(105%*25+13)=17,700/26.25-13=17,700/13.25= 1336.

% BE sales change= 1336/300-1=345%