a) The determination of the variable costs per haircut and the total monthly fixed costs for Fredonia Barber Shop are as follows:
<h3>1) Variable Costs per haircut:</h3>
Commission per barber per haircut = $5.50
Barber supplies per haircut = $0.30
Utilities per haircut = $0.20
Total variable costs per haircut = $6.00
<h3>2) Fixed costs per month:</h3>
Salaryiesof barbers (6 x $1,470) = $8,820
Supervisor's salary = $2,000
Advertising per month = $310
Rent per month = $930
Utilities per month = $175
Magazines per month = $20
Total fixed costs per month = $12,255
b) The computation of the break-even point in units and dollars for Fredonia Barber Shop is as follows:
1) Break-even point in units is <u>2,451 units</u> ($12,255/$5)
= Fixed costs/Contribution margin per unit
Contribution margin per unit = $5 ($11 - $6)
2) Break-even point in dollars is $26,964 ($12,255/45.45%)
= Fixed costs/Contribution margin ratio
Contribution margin ratiio = 45.45% ($5/$11 x 100)
c) The net income when 2,880 haircuts are given in a month is $2,145.
Fredonia Barber Shop
<h3>Income Statement</h3>
For the month
Sales Revenue (2,880 x $11) $31,680
Variable costs (2,880 x $6) 17,280
Contribution margin = $14,400
Fixed costs 12,255
Net income = $2,145
<h3>Data and Calculations:</h3>
Number of barbers employed = 7
Base rate per barber per month = $1,470
Mnager's salary per month = $2,000 ($1,470 + $530)
Commission per barber per haircut = $5.50
Other costs:
Advertising per month = $310
Rent per month = $930
Barber supplies per haircut = $0.30
Utilities per month = $175 plus $0.20 per haircut
Magazines per month = $20
Price charged per haircut = $11.00
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