Juan Perez owns the Fredonia Barber Shop. He employs four barbers and pays each a base rate of €1,250 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 €4.50 per haircut.

Other costs are as follows.

Advertising.............................................€200 per month

Rent........................................................€1,100 per month

Barber supplies....................................€0.30 per haircut

Utilities....................................................€175 per month plus €0.20 per haircut

Magazines...............................................€25 per month

Juan currently charges €10 per haircut.

Instructions

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

b. Compute the break-even point in units and sales.

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 1,600 haircuts are given in a month.