Desired Deliverable length 1-2 page excel speedsheet Consider the following scen

Question

Desired Deliverable length 1-2 page excel speedsheet
Consider the following scenario:
Andre has asked you to evaluate his business, Andre’s Hair Styling. Andre has five barbers working for him. (Andre is not one of them.) Each barber is paid $9.90 per hour and works a 40-hour week and a 50-week year, regardless of the number of haircuts. Rent and other fixed expenses are $1,750 per month. Hair shampoo used on all clients is .40 per client. Assume that the only service performed is the giving of haircuts (including shampoo), the unit price of which is $12. Andre has asked you to find the following information.

1.Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost. Show calculations to support your answer.
2.Determine the annual break-even point, in number of haircuts. Support your answer with an appropriate explanation. Show calculations to support your answer.
3.What will be the operating income if 20,000 haircuts are performed? Show calculations to support your answer.
4.Suppose Andre revises the compensation method. The barbers will receive $4 per hour plus $6 for each haircut. What is the new contribution margin per haircut? What is the annual break-even point (in number of haircuts)? Show calculations to support your answer.

Explanation / Answer

This soln doesn't need an excel sheet.... 1. Only Var cost is Shampoo cost = 0.40 per client So Cont margin pu = Price pu - Var cost pu = 12-0.40 = 11.60 pu......Ans (1) 2. Annual Fixed cost = No of barber*Barber Salary for 50 week + Annual Resnt exp ie Annual FC = 5*($9.90*40*50) + 12*1750 = $120,000 BEP in units = Total Fixed cost/COnt pu = 120000/11.60 = 10344.83 Rounded off to 10345 Haircuts every year...........................Ans (2) 3. For 20000 haircuts, total Cont = No of haircuts * Cont pu = 20000*11.60 = $232,000 So Net Income = Total Cont - Fixed costs = $232,000-$120,000 = $112,000....Ans(3) 4. New Cont margin pu = Sale pu - Var cost pu = 12-(6+0.40) = 5.60 pu New Annual Fixed cost = No of barber*Barber Salary for 50 week + Annual Resnt exp ie Annual FC = 5*($4*40*50) + 12*1750 = $61,000 BEP in units = Total Fixed cost/COnt pu = 61000/5.60 = 10892.86 Rounded off to 10893 Haircuts every year...........................Ans (4)

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