Sunland Diesel owns the Fredonia Barber Shop. He employs 4 barbers and pays each a base rate of $1,440 per month. One of the barbers serves as the manager and receives an extra $520 per month. In addition to the base rate, each barber also receives a commission of $9.15 per haircut. Other costs are as follows. Advertising $240 per month
Rent $1,100 per month
Barber supplies $0.35 per haircut
Utilities $185 per month plus $0.10 per haircut
Magazines $35 per month Sunland currently charges $16 per haircut.

Vin currently charges $10 per haircut.
Required:

a. Determine the variable costs 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 1,600 haircuts are given in a month.

a. Variable costs = $9.60 and Fixed Costs = $7,840

b. 1,225 haircuts and $19,600

c. See attachment

d.  $2,400

Explanation:

Variable Costs per haircut Calculations

Barber supplies                            $0.35

Utilities                                           $0.10

Commission                                   $9.15

Total Variable Costs per haircut $9.60

Total Monthly Fixed Costs Calculation

Base Salary (1,440 × 4 + 520)     $6,280

Advertising                                      $240

Rent                                               $1,100

Utilities                                             $185

Magazines                                        $35

Total Monthly Fixed Costs          $7,840

Contribution per unit = Selling price per unit - Variable Cost per unit

                                   = $16.00 - $9.60

                                   = $6.40

Contribution Margin Ratio = Contribution ÷ Selling Price

                                            = $6.40 ÷ $16.00

                                            = 0.40

Break-even point (units) = Fixed Cost ÷ Contribution per unit

                                        = $7,840 ÷ $6.40

                                        = 1,225 haircuts

Break-even point (dollars) = Fixed Cost ÷ Contribution Margin Ratio

                                            =  $7,840 ÷ 0.40

                                            = $19,600

Net income, assuming 1,600 haircuts are given in a month [calculation]

Contribution (1,600 × $6.40)     $10,240

Less Fixed Costs                        ($7,840)

Net Income/(loss)                        $2,400

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