Reconsider study problem 2-44 (Andre\'s Barber Shop), with some different facts.

Question

Reconsider study problem 2-44 (Andre's Barber Shop), with some different facts. Assume that in 2012, Andre has charged customers $13-00 per haircut, has paid each of his six barbers a salary of $54,000, and has had miscellaneous fixed costs of $18,000. It is expected that his barbers will give a total of 23,000 haircuts during the year. Andre is considering changing the way he pays his barbers in 2013. He is considering paying each barber a salary of $21,000 plus a 52% commission on each haircut s/he gives. He will continue to charge $13.00 per haircut, and he believes that the total number of haircuts will not be affected by the way he pays his barbers. How many total haircuts mast his barbers give in 2013 in order for Andre to be indifferent between the 2012 and 2013 payment plans?

Explanation / Answer

In 2012, Andre Fixed costs = 6*$54000 + 18000 = 342,000 Total Sales = 23000*$13 = $299,000 So Net Loss in 2012 = 299,000 - 342,000 = 43000 ...........(a) In 2013, Andre Fixed costs = 6*$21000 = 126,000 Comm = 23000*$13*52% = 156480 So Total Cost = $281,480 Total Sales = 23000*$13 = $299,000 So Net profit = 299,000-281,480 = $17,520 .........(b) To be indiffernt in 2013, Andre must make a Loss of 43000 ie H*$13 - (126000 + H*$13*52%) = -43000 ie 13*H -6.76*H = 126000-43000 = 83000 ie H = 13,301 So If ANdre gives 13301 Haircuts in 2013, he will be indifferent to waht he does in 2012

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