Breakeven Analysis . Betty\'s Boutique, Inc., is a beauty salon specializing in
ID: 1132982 • Letter: B
Question
Breakeven Analysis. Betty's Boutique, Inc., is a beauty salon specializing in full-service beauty treatments: facials, manicures, waxes and tanning booths. The business manager for Betty's has been asked by the owner to prepare a financial analysis of the potential of an extended hours operation. Such a move would require remodeling the facility and the hiring of additional staff. Estimated first year expenses for an extended hours operation are:
Support staff salary expense
$ 12,000
Beautician salary expense
90,000
Beauty supplies
8,000
Equipment
10,000
Remodeling
24,000
Electricity, heat, and taxes
25,000
Total expenses
$169,000
Beautician and staff salary expenses are estimated on an hourly basis, reflecting additional salary and overtime costs. Supplies and remodeling expenses are above and beyond those required for normal facility operations. Equipment costs represent a prorated share of the centers fixed equipment-leasing costs. Electricity costs of $4,000 reflect additional anticipated usage, whereas heat and taxes of $5,000 reflect an allocated share of fixed beauty shop expenses.
A.
Calculate breakeven revenue for the proposed extended hours operation.
Support staff salary expense
$ 12,000
Beautician salary expense
90,000
Beauty supplies
8,000
Equipment
10,000
Remodeling
24,000
Electricity, heat, and taxes
25,000
Total expenses
$169,000
Explanation / Answer
Break-even scenario implies a situation in which case total revenue equals the total cost.
In the given case, we have to first ascertain the incremental cost of extending the hours of operation.
While calculating the incremental cost of extending the hours of operations, cost of equipment and heat and taxes would not be taken as these are fixed expenses and does not change even if hours of operation are extended.
Calculate the incremental cost -
Incremental cost = Support staff salary expenses + Beautician salary expense + Beauty supplies + Remodelling + Aadditional electricity expense
Incremental cost = $12,000 + $90,000 + $8,000 + $24,000 + $4,000 = $138,000
The incremental cost of extending the hours of operation is $138,000.
At break-even, revenue equals cost.
So,
The break-even revenue for the proposed extended hours operation is $138,000.
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