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(a)
$10,940
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(b)
(c)
Determine net income, assuming 2,480 haircuts are given in a month.
Telly Savalas owns the Bonita Barber Shop. He employs 6 barbers and pays each a base rate of $ 1,500 per month. One of the barbers serves as the manager and receives an extra $ 510 per month. In addition to the base rate, each barber also receives a commission of $ 5.90 per haircut.Other costs are as follows. Advertising $ 270 per month Rent $ 960 per month Barber supplies $ 0.40 per haircut Utilities $ 180 per month plus $ 0.40 per haircut Magazines $ 20 per month
Telly currently charges $ 11.90 per haircut.
Explanation / Answer
Total Variable cost
= Commissions per hair cut + utilities expense per hair cut + Barber supplies expense per hair cut
= $5.90+$0.40+$0.40 = $6.70
Total Monthly Fixed cost
= Toatl basic salary of the 6 barbers + Additional payment to supervisor + Fixed utilities expense + Advertising cost + rent + Cost of magazines
= 6 x $1500 + $510 + $180+ $270 + $960 + $20
= $10940
(b)
Contribution per haircut
= fees per haircut - variable cost per hair cut
= $11.90 - $6.70
= $5.20
Contribution Margin ratio
= Contribution per haircut / Fees from single haircut
= $5.20 / $11.90
= 0.436975
Break Even point in number of haicuts
= Fixed cost / Contribution per unit
= $10940 / $5.20
= 2104 hair cuts
Break even point in dollars = 2104 x $11.90 = $25038
(c)
Net contribution from 2480 haircuts = 2480 x $5.20 = $12896
Net income from 2480 haircuts = $12896 - $10940 = $1956
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