Problem 18-1A (Part Level Submission) Vin Diesel owns the Fredonia Barber Shop.
ID: 2513569 • Letter: P
Question
Problem 18-1A (Part Level Submission) Vin Diesel owns the Fredonia Barber Shop. He employs 6 barbers and pays each a base rate of $1,350 per month. One of the barbers serves as the manager and recelves an extra $530 per month. In addition to the base rate, each barber also receives a commission of $5.86 per haircut. Other costs are as follows Advertising Rent Barber supplies Utilities Magazines $200 per month $910 per month $0.30 per haircut $170 per month plus $0.30 per haircut $20 per month Vin currently charges $11.46 per haircut.Explanation / Answer
Total variable cocst per cut: Commission to barber 5.86 Barber supplies 0.3 Utilities 0.3 Total variable cost per cut: 6.46 Total Fixed cost: Salary of Barbers (1350*6+530*1) 8630 Advertising 200 Rent 910 Utilities 170 Magazines 20 Total Fixed cost: 9930 Contribution per cut: Revenue per cut 11.46 Less: Variable cost per unit 6.46 Contribution per cut: 5 CM Ratio : Contribution / revenue per cut *100 = 5 /11.46*100 =43.63% Break even in terms of cuts : Fixed cost /CM per unit = 9930 / 5 = 1986 cuts Break even in $= Fixed cost / CM ratio = 9930 / 43.63% = 22760 Req a-1 At higher activity, machine hours = 9400 Total cost =5428 At low acativity, Machine hour = 4112, Total cost =3102 Variable cost per MH = Change in cost/Change in MH= (5428-3102) /(9400-4112) = $ 0.44 per MH Now, Total cost at 9400 MH 5428 Less: Variable cost 4136 (9400 Mh @ 0.44) Fixed Cost 1292