Stephen Thorne owns the Fredonia Barber Shop. He employs five barbers and pays each a base rate

Question:

Stephen Thorne 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 the 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

Stephen currently charges $10 per haircut.


Instructions

(a) Determine the variable cost per haircut and the total monthly fixed costs.

(b) Compute the break-even point in units and dollars.

(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.

(d) Determine net income, assuming 1,900 haircuts are given in a month.


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