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
.Therefore,initially Bill diner's opportunity cost of an additional hot dog is 1.4 units of burger.
approximately.Hence,Bill's diner is willing to sacrifice approximately 0.385 units of burger to consume an additional unit of hot dog.
units of burger.Notice,that here the opportunity cost of additional hot dog decreased from 1.4 units of burger to 0.385 units of burger as Bill's diner changed the consumption combination of both burgers and hot dogs.