Stan Loy owns the Vista 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 |
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.