Question

John, now retired, owns the Campus Cutter Barber Shop. He employs five barbers and pays each a base salary of $1,500 per month. One of the barbers serves as the manager and receives an extra $500 per month. In addition to the base salary, each barber receives a commission of $6 per haircut. Each barber can do as many as 20 haircuts a day, but the average is 14 haircuts each day. The Campus Cutter Barber Shop is open an average of 24 days per month and charges $15 per haircut.

Other costs are incurred as follows:

Advertising	$500 per month
Rent	$1,000 per month
Supplies	$1.50 per haircut
Utilities	$300 per month, plus $0.50 per haircut
Magazines	$50 per month
Cleaning supplies	$0.25 per haircut

Instructions

a.  Calculate the monthly break-even point for the following:

• 1.Number of haircuts
• 2.Total sales dollars
• 3.As a percentage of maximum capacity

b.  In February, 1,500 haircuts were given. Calculate the operating income for February.

c.  If John would like a $4,000 monthly profit, calculate the number of haircuts that must be given per month to achieve this profit.

d.  In March, 1,600 haircuts were given. Assuming demand is sufficient, would it be possible to give enough haircuts in April to bring the total for the two months combined to the target profit of $4,000 for each month?

Answer 1

Answer is given below with full working

Total Fixed Cost Barber Salary Manager salary Advertising Rent $6,000 $2,000 $500 $1,000 $300 Utilities Magazines Total Fixed cost $50 $9,850 Charge per haircut Less: Variable cost Commission Supplies $15.00 a) $6.00 $1.50 $0.50 Utilities Cleaning supplies Total variable cost $0.25 $8.25 Contribution per haircut $6.75 Total Fixed cost $9,850 Break even point in haircuts (Fixed cost/Contribution per haircut) а.1 1,459.26 1,460 Rounded off Total Sales dollars (Haircuts Selling price) $21,900 а.2 Maximum capacity 2,400 (5 barber x 20 haircuts x 24 days) As a % of maximum capacity 61% а.3 (1,460/2,400) February Operating income Sales Less: Variable cost Contribution Margin Fixed cost Net profit b $22,500 $12,375 $10,125 $9,850 $275 Monthly profit of $ 4,000 Fixed Cost Profit Total target needed с. $9,850 $4,000 $13,850 Contribution per unit $6.75 2,051.85 2,052.00 Rounded off Total haircuts $10,800 $9,850 Contribution in March for 1, 600 haircut Fixed cost d. Net profit Target profit profit shortfall $950 $4,000 $3,050 April Haircuts Maximum haircuts capacity $2,400 Contribution maximum ( 2,400 $6.75) $16,200 Less: Fixed cost Profit Profit needed $9,850 $6,350 $4,000 Excess profit for April March Profit needed $2,350 $3,050 Shortfall -$700 No it is not possible to bring combined profit of $4,000 each month since capacity in April is fully utilized

$6,000 Total Fixed Cost Barber Salary Manager salary Advertising Rent Utilities Magazines Total Fixed cost $2,000 $500 $1,000 $300 $50 $9,850 $15.00 Charge per haircut Less: Variable cost Commission Supplies Utilities Cleaning supplies Total variable cost Contribution per haircut $6.75 Total Fixed cost $9,850 a.1 1,459.26 Break even point in haircuts (Fixed cost/Contribution per haircut) 1,460 Rounded off $21,900 Total Sales dollars (Haircuts * Selling price) 2,400 Maximum capacity (5 barber x 20 haircuts x 24 days) a.3 As a % of maximum capacity (1,460/2,400) b February Operating income Sales Less: Variable cost Contribution Margin Fixed cost Net profit $22,500 $12,375 $10,125 $9,850 $275 C. Monthly profit of $ 4,000 Fixed Cost Profit Total target needed $9,850 $4,000 $13,850 Contribution per unit $7 Total haircuts 2,051.85 2,052.00 Rounded off d. Contribution in March for 1,600 haircut Fixed cost Net profit Target profit profit shortfall $10,800 $9,850 $950 $4,000 $3,050 April Haircuts Maximum haircuts capacity $2,400 Contribution maximum (2,400 * $6.75) Less: Fixed cost Profit Profit needed $16,200 $9,850 $6,350 $4,000 Excess profit for April March Profit needed Shortfall $2,350 $3,050 -$700 No it is possible to bring combined profit of $4,000 each month since capacity in April is fully utilized