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?
HELP!!!
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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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