The peace barber shop employs four barbers. One barber, who also serves as the m

Question

The peace barber shop employs four barbers. One barber, who also serves as the manager, is paid a salary of $1,800 per month. The other barbers are paid 1,300 per month. In addition, each barber is paid a commission of $4 per haircut. Other monthly costs are: store rent $800 plus 60 cents per haircut, depreciation on equipment $500, barber supplies 40 cents per haircut, utlilities $300, and advertising $ 200. the price of a haircut is $11.
Instructions
(1)Determine the variable cost per haircut and the total monthly fixed cost
(2) Compute the break even point in i)units and ii)dollars
(3)Determine the net income, assuming 1500 are given in a month?

Explanation / Answer

a) VC = Commision to barber per hair cut + Rent per hair cut + Barber suplies per cut

= 4 + 0.6 + 0.4 = $5 per hair cut

FC = Manager salary + other barber salaries + Store rent + Depreciation + untilities + advertising

= 1800 + 1300*3 +800 + 500 + 300 + 200 = $7,500 per month

B) contribution = P - VC = 11 - 5 = $6

i) break even units = FC/contribution =7500/6 = 1250 hair cuts

ii) break even sales in dollars = P*break even sales units = 11*1250= $13,750

c) Income = Revenue - costs = P*units - FC - P*VC = 11*1500 - 7500 - 11*5 = $1,500

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