Vin Diesel owns the Fredonia Barber Shop. He employs four barbers and pays each a base rate of $1,250 per month. One of the barbers serves as the manager and receives an extra $500 per month. In addition to the base rate, each barber also receives a commission of $4.50 per haircut.
Other costs are as follows
| Advertising | $200 per month |
| Rent | $1,100 per month |
| Barber supplies | $0.30 per haircut |
| Utilities | $175 per month plus $0.20 per haircut |
| Magazines | $25 per month |
Vin currently charges $10 per haircut
Instructions
- Determine the variable costs per haircut and the total monthly fixed costs.
- Compute the break-even point in units and dollars.
- 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.
- Determine net income, assuming 1,600 haircuts are given in a month.
Solution
