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problem: 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 USD 9.90 per hour and works a 40-hour week and a fifty-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 USD 12. Andre has asked you to find the following information.

[A]      What will be the operating income if 20,000 haircuts are performed? 

[B]      Assume Andre revises the compensation method. The barbers will receive USD 4 per hour plus USD 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.

[C]      Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost. Show calculations to support your answer.

[D]      find out the annual break-even point, in number of haircuts. Support your answer with an appropriate explanation. Show calculations to support your answer.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M916173

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