Fine contribution margins: barbershop (calculating break-even point and operating income)
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A barber has asked me evaluate his business. He has 5 barbers working for him (he doesn't cut hair). Each barber is paid $9.90/hr and works 40-hrs week and a 50-week year, REGARDLESS of the number of haircuts. There is rent and fixed expenses ($1,750) per month. Assume the only service performed is haircuts, the unit price is $12. The barber asked me to find the following information.
Find the contribution margin per haircut. Assume that the barber's compensation is a fixed cost. Determine the annual break-even point, in number of haircuts. What will be the operating income if 20,000 haircuts are performed?
1. contribution margin per haircut
This case is quite special, because there's no variable cost involved. We have to make VC=0, then from the formula:
CM = Unit Price - Variable cost ...
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