Question

Please explain as well.

Problem 6.40A a-b,d The Peace Barber Shop employs four barbers. One barber, who also serves as the manager, is paid a salary of $1,800 per month. The other barbers are paid $1,330 per month. In addition, each barber is paid a commission of $2 per haircut. Other monthly costs are as follows: store rent $790 plus 60 cents per haircut; depreciation on equipment $510; barber supplies 40 cents per haircut; utilities $350; and advertising $250. The price of a haircut is $13. Determine the variable cost per haircut and the total monthly fixed costs. (Round variable cost to 2 decimal places, e.g. 15.25.) Variable cost per haircut Total monthly fixed costs Calculate the break-even point in units and dollars. Break-even Point units Break-even Points

Answer 1

Variable cost per haircut is $ 3

Total monthly fixed cost is $ 7690

Break even point is at 769 haircuts

Break even point in $ 999

Operating income is $7310

Workings as below

Given: Price per haircut -$13 Salary of manager cum barber- $1800 Salary of other 3 barbers - $1330 per barber Commission per haircut -$2 Store rent- $790 plus 0.60 per haircut Depreciation per month on equipment $510, barber supplies 0.40 per haircut, Utilities $350, advertising $250. Solution : Computation of total variable cost Commission - $2 Variable store rent - $0.60 Barber supplies - $0.40 Therefore total variable cost per haircut = $3 Hence, contribution per haircut = $13-$3 = $10 Computation of total fixed cost per month PARTICULARS Salary of manager cum barber Salary of other 3 barbers Store rent Depreciation Utilities advertising TOTAL FIXED COST PER MONTH AMOUNT 1800 3990 790 510 350 250 7690 BREAK EVEN POINT = 7690/10 = 769 HAIRCUTS PER MONTH BREAK EVEN POINT VALUE $ 9997 (769*13)

PART 2 )COMPUTATION OF OPERATING INCOME IF THERE ARE 1500 HAIRCUTS IN A MONTH AMOUNT 19500 PARTICULARS TOTAL REVENUE GENERATED (1500*13) (-) TOTAL VARIABLE COST(1500*3) TOTAL CONTRIBUTION (-) TOTAL FIXED COST -4500 15000 -7690 TOTAL profit 7310 OR UNITS SOLD ABOVE BEP =1500-769 =731 CONTRIBUTION RECOVERED FROM UNITS SOLD ABOVE BEP = 731*$10 =$7310 HENCE TOTAL PROFIT IF NUMBER OF HAIRCUTS ARE 1500 IN THE MONTH IS $7310.