Answer:
a). Total fixed costs per month=$9,310
Total variable cost per haircut=$28.10
b). Break-even point=1,900 haircuts
Break-even sales=11×1,900=$20,900
c). Net income=$2,548 profit
Explanation:
a)
Variable costs depend on the level of output. They can be calculated as follows;
Total variable cost per haircut=Commission per haircut+supplies per hair cut+utilities per hair cut
where;
Commission per haircut=$5.50=$5.50
Barber supplies per hair cut=$0.36
utilities per hair cut=$0.24
replacing;
Total variable cost per haircut=5.50+0.36+0.24=$6.10
Fixed costs do not depend on the level of output. They can be calculated as follows;
Total fixed costs per month=base rate per month+manager extra salary per month+advertising per month+rent per month+utilities per month+magazines per month
where;
base rate per month=1,480×5=$7,400
manager extra salary per month=510×1=$510
advertising per month=$220
rent per month=$980
utilities per month=$180
magazines per month=$20
replacing;
Total fixed costs per month=7,400+510+220+980+180+20=$9,310
Total fixed costs per month=$9,310
Total variable cost per haircut=$6.10
b). Break-even point is the point where the cost of goods sold is the same as the amount received in sales;
Cost of goods sold=Fixed costs+total variable costs
where;
Fixed costs=$9,310 per month
Total variable costs=variable cost per haircut×number of haircuts=6.10×n=$6.1 n
replacing;
Cost of goods sold=6.1 n+9,310... equation 1
Total sales=cost per haircut×number of haircuts (n)=11×n=11 n
Total sales=11 n... equation 2
Equate equation 1 and 2
6.1 n+9,310=11 n
11 n-6.1 n=9,310
4.9 n=9,310
n=9,310/4.9=1,900
n=1,900
Break-even point=1,900 haircuts
Break-even sales=11×1,900=$20,900
c). Determine net income
Net income=Revenue-expenses
where;
revenue=11×2,420=$26,620
expenses=(6.1×2,420)+9,310=14,762+9,310=$24,072
replacing;
Net income=26,620-24,072=$2,548
Net income=$2,548
