Andrew

drew

Andre has asked you to evaluate his business, Andre’s Hair Styling. Andre has five barbers working for him. (Andre is not one of them.) Each barber is paid $9.90 per hour and works a 40-hour week and a 50-week year, regardless of the number of haircuts. Rent and other fixed expenses are $1,750 per month. Hair shampoo used on all clients is .40 per client. Assume that the only service performed is the giving of haircuts (including shampoo), the unit price of which is $12. Andre has asked you to find the following information.

Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost. Show calculations to support your answer.

Determine the annual break-even point, in number of haircuts. Support your answer with an appropriate explanation. Show calculations to support your answer.

What will be the operating income if 20,000 haircuts are performed? Show calculations to support your answer.

Suppose Andre revises the compensation method. The barbers will receive $4 per hour plus $6 for each haircut. What is the new contribution margin per haircut? What is the annual break-even point (in number of haircuts)? Show calculations to support your answer.

Contribution margin per head = Hair cut price – Shampoo expense

= 12 - .40 = $11.60

Break even point is the point at which all the fixed costs are recovered and the company is neither making profit nor loss. After this point the company starts making profits.

Break even point = Fixed cost / Contribution margin

Fixed cost = Barber’s compensation + Rent and other fixed expenses

= 9.9*40*50*5 + 1750*12

= 99000 + 21000

= 120000

Break even points = 120000 / 11.6 = 10345(rounded)

Operating Income = Contribution @ 20000 hair cuts – Fixed Expenses

= 20000*11.6 – 120000

= 112000

Andre`s Hair Stylling "number of burbers "5 "each burber 's salary per hour "9 .25 "working hour 's per week "40 "working week per...