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Problem 5-2A a-b,d (Video) Sunland Diesel owns the Fredonia Barber Shop
Problem 5-2A a-b,d (Video)
Sunland Diesel owns the Fredonia Barber Shop. He employs 4 barbers and pays each a base rate of $1,410 per month. One of the barbers serves as the manager and receives an extra $580 per month. In addition to the base rate, each barber also receives a commission of $10.30 per haircut.
Other costs are as follows.
| Advertising | $230 | per month | |
| Rent | $1,100 | per month | |
| Barber supplies | $0.40 | per haircut | |
| Utilities | $160 | per month plus $0.10 per haircut | |
| Magazines | $30 | per month |
Sunland currently charges $18 per haircut.
Determine the variable costs per haircut and the total monthly fixed costs. (Round variable costs to 2 decimal places, e.g. 2.25.)
Compute the break-even point in units and dollars.
Determine net income, assuming 1,590 haircuts are given in a month.
Expert Solution
Part A
|
Variable costs (per haircut)
|
Fixed costs (per month)
|
|||||
|---|---|---|---|---|---|---|
| Barbers’ commission | $10.30 | Barbers’ salaries | $5,640 | |||
| Barber supplies | 0.40 | Manager’s extra salary | 580 | |||
| Utilities | 0.10 | Advertising | 230 | |||
| Total variable cost per haircut | $10.80 | Rent | 1,100 | |||
| Utilities | 160 | |||||
| Magazines | 30 | |||||
| Total fixed | $7,740 | |||||
Part B
| $18X | = | $10.80X + $7,740 | 1,075 haircuts X $18 | = | $19,350 | |
| $7.20X | = | $7,740 | ||||
| X | = | 1,075 haircuts |
Part C
(No. haircuts x USP) – (No. haircuts x UVC) – FC = Net inc.
| Net income | = | ($1,590 x $18) – ($10.80 x 1,590) – $7,740 |
| = | $3,708 |
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