Matt Reiss owns the Fredonia Barber Shop. He employs five barbers and pays each

Question

Matt Reiss owns the Fredonia Barber Shop. He employs five barbers and pays each a base rate of $1,000 per month. One of the barbers serves as teh manager and receives an extra $500 per month. In addition to the base rate, each barber also receives a commission of %5.50 per haircut.
Other costs are as follows:
Advertising $200 per month
Rent $900 per month
Barber supplies $0.30 per haircut
Utilities $175 per month plus $0.20 per haircut
Magazines $25 per month
Matt currently charges $10 per haircut
(c) Prepare a CVP graph, assuming a maximum of 1,800 haircuts in a month. Use increments of 300 haircuts on the horizontal axis and $3,000 on the vertical axis.

Explanation / Answer

First, you should separate your fixed cost (the ones that stay the same) and your variable cost (the ones that change or vary)

Fixed costs:

$1,000 base pay for barbers multiplied by number of barbers (5) = $5,000
$500 extra pay for tech manager
$200 Advertising
$900 rent
$175 Utilities
$25 Magazines

So, the total fixed costs are: $6,800
This means that even if the barbers go an entire month without customers, there will still be a cost of $6,800
Note: In many cases, the salary for the barbers could be a variable cost, but since we are assuming that the number of barbers stayed the same for the entire month, we can list their pay as a fixed cost.

Next we calculate the total variable cost

Variable costs:

commission of %5.50 per $10 haircut
Barber supplies $0.30 per haircut
Utilities $0.20 per haircut

commission of
300 haircuts: = ($10 multiplied by 300) multiplied by 0.055 = $165
600 haircuts = ($10 multiplied by 600) multiplied by 0.055 = $330
900 haircuts = ($10 multiplied by 900) multiplied by 0.055 = $495
1200 haircuts = ($10 multiplied by 1200) multiplied by 0.055 = $660
1500 haircuts = ($10 multiplied by 1500) multiplied by 0.055 = $825
1800 haircuts = ($10 multiplied by 1800) multiplied by 0.055 = $990

barber supplies of
300 haircuts: = ($0.30 multiplied by 300) = $90
600 haircuts = ($0.30 multiplied by 600) = $180
900 haircuts = ($0.30 multiplied by 900) = $270
1200 haircuts = ($0.30 multiplied by 1200) = $360
1500 haircuts = ($0.30 multiplied by 1500) = $450
1800 haircuts = ($0.30 multiplied by 1800) = $540

utilities supplies of
300 haircuts: = ($0.20 multiplied by 300) = $60
600 haircuts = ($0.20 multiplied by 600) = $120
900 haircuts = ($0.20 multiplied by 900) = $180
1200 haircuts = ($0.20 multiplied by 1200) = $240
1500 haircuts = ($0.20 multiplied by 1500) = $300
1800 haircuts = ($0.20 multiplied by 1800) = $360

so the total cost (all variable cost + fixed cost) of
300 haircuts: = 60 + 90 + 165 + 6800 = $7115
600 haircuts = 120 + 180 + 330 + 6800 = $7430
900 haircuts = 180 + 270 + 495 + 6800 = $7740
1200 haircuts = 240 + 360 + 660 + 6800 = $8060
1500 haircuts = 300 + 450 + 825 + 6800 = $8375
1800 haircuts = 360 + 540 + 990 + 6800 = $8690

so the profit (revenue - total cost) of
300 haircuts: = (300 multiplied $10) - 7115 = -4115
600 haircuts = (600 multiplied $10) - 7430 = -1430
900 haircuts = (900 multiplied $10) - 7740 = 1260
1200 haircuts = (1200 multiplied $10) - 8060 = 3940
1500 haircuts = (1500 multiplied $10) - 8375 = 6625
1800 haircuts = (1800 multiplied $10) - 8690 = 9310

Note: Negative profit will result in a loss and positive profit will result in a gain

now you just gotta graph all the total cost values versus the profit values with the number of haircuts on your x axis and the the (cost and or revenue) as your y axis

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