Question

Tracy Stevens opened a hair salon, named “Tracy Trims” specializing in trims that maintain customer’s hairstyles. The only service available at Tracy’s Trims is minor variations on a “30 minute” haircut for which the customer is charged $20. The shop has five (5) newly trained “trimmers.” (Tracy does not work in the salon. And, as owner/entrepreneur, she takes no salary.)

Her annual cost structure is as follows:

Trimmer annual salary (per person):                                       $36,000

Leases equipment cost per year:                                                  2,400

Store fixtures depreciation per month                                        400

Hair cutting supplies per year                                                       1,500

Salon Lease per month                                                                      2,000

Utilities per month on average                                                           200

Tracy is looking at her cost structure and is concerned about making a profit. She is looking at three options:

Option 1:             All cost remain the same as shown above

Option 2:            The landlord has given her the option to pay $1000 per month rent plus 20% of the monthly total revenue.

Option 3.            Pay the trimmer a 50% commission on each hair cut instead of the annual salary.

Option 4:             both Option 2 and Option 3 together

Option 5:             If all costs remain the same as shown above in option 1, and Tracy introduces a new 1-hour service called “wash, cut, and style” and can charge $50 for this service, monthly demand for this service is 80 bookings. How many “Tracy Trims” and “wash, cut, and Style” should the business try to book each month?

Instructions:  

1. For each option make a list of the variable and fixed cost
2. Calculate the break-even point in number of haircuts.
3. Calculate the net income per month use your own sales projections! What happens if all 5 employees are fully booked 5 days a week, which option gives the most profit? What if sales are not good and employees are not fully booked?

Need the answer for no. 3 .

Answer 1

Answer option ① salary - 18000 Lease Equip = 2400 Su peleis = 1500 Lease sdoon: 24000 utilites. = 4.800 (180000 € 2400 41500 + 24000 +2400+1800) - Total fixed cost = 215100 Lease Rent - Contribution Lomb = 20 Break even How'r cuts = 215000 20 . = 10750

option ③ Salary - 180000 Lease equip = 2400 Supplegs = 1500 Lease saloon = 12000 utilitáss = 2400 Depreciation - 4800 = (180000 +2400. 1500 +12000+ 2400 + 4800) Total Cock 203100 Leare pont - 2011 Total Variable cast pea ? 20x0.2 4 cond sübuitions (orif=16 oz 203100 = 12694

option ③ - Salary so - Lease equip - 2000 Supplies - 1500 Lease saloon - 24000 Depreciate =4800 Utilities - 2600 2400 + 1500 + 24000+ 4800+ 2600 ... 35100 commission :- 50% Variable cost per unit = 20x05 -10 contribution lunit is o 5 35 100 To even Haircuts 23510 . Break

option @ . Salary to Lease equip = 2400 Suppless = 1500 Lease saloon=12000 utilities : = 2400 Depreciation 12800 ») 3400 + 1500 + 12000+22400 + 4800) fixed cost - 23100 Lean Rent - 20% Commission -50% . variable cost per = 20007 Contoributions =6 - 23100. - 1650

Break even - Has cuts = 1650 options monies Recovered sty: 50 x 80 x12 a 4000k12 48000 Re mouning fixed cost = 215100-48000 = 167100 Break even . = 167100 = 835 20 month so wash styles and 8.355 696 1.2 .