Matt Reiss owns the Fredonia Barber Shop. He employs 5 barbers and pays each a b
ID: 2435751 • Letter: M
Question
Matt Reiss owns the Fredonia Barber Shop. He employs 5 barbers and pays each a base rate of $1,040 per month. One of the barbers serves as the manager and receives an extra $497 per month. In addition to the base rate, each barber also receives a commission of $5.60 per haircut.
Other costs are as follows.
Advertising $220.00 per months
Rent $912.00 per month
Barber Supplies $0.30 per month
Utilities $172 per month plus $0.30 per haircut
Magazines $27 per month
Matt currently charges $10.33 per haircut.
Determine the variable cost per haircut and the total monthly fixed costs. (Round variable costs to 2 decimal places, e.g. 10.50. Round fixed costs to 0 decimal places, e.g. 125.)
Variable cost =
Total fixed Cost =
Compute the break-even point in units and dollars. (Round answers to 0 decimal places, e.g. 125.)
Break point in Units (haircuts) =
Break point in dollars =
Determine net income, assuming 2,000 haircuts are given in a month.
Net Income =
Explanation / Answer
The variable cost is calculated as:
Utilities cost = $0.30 per haircut
Sales commission cost = $5.6 per haircut
Total varible cost per hair cut = $0.30 + $5.6
= $5.9
Total fixed costs are:
Advertising cost = $220
Rent = $912
Supplies = $0.3
Utilities = $172
Magazines = $27
Managers salary = $497
Total Fixed costs = $220 + $912 + $0.3 + $172 + $27 + $497
= $1828.3
Charges = $10.33 per haircut
Therefore, calculating the unit contribution
Unit contribution = Charges - Variable cost
= $10.33 - $5.9
= $4.43
Unit contribution margin = Unit contribution margin / Monthly charges
= $4.43 / $10.33
= 0.43 or 43%
Calculating the Break even point
Break even point = Fixed costs / Unit contribution margin
= $1828.3 / 4.43
= $412.7
Therefore, the number of hair cuts where there is no profit no loss is $412 per month
Break even point in Dollars = Fixed costs / CM ratio
= $1828.3 / 0.43
= $4251.86
Therefore, the breakeven point in dollars is $4251.86
CAlculating the net income:
Monthly sales(2,000 * $10.33) $20,660
(-) Variable costs (2,000 * $5.9) $11,800
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Contribution margin $8,860
(-) Fixed costs $1,828.3
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Net income $7031.7
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Therefore, the net income is $7,031.7