Consider the following scenario:
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.
|
Grading Criteria |
Percentage |
|
Find the contribution margin per haircut. |
25% |
|
Determine the annual break-even point, in number of haircuts. |
25% |
|
What will be the operating income if 20,000 haircuts are performed? |
25% |
|
Suppose Andre revises the compensation method. The barbers will receive $4 |