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Responsibility Centers and financial control

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Andre has asked you to evaluate his business, Andre's Hair Stylling. Andre has five barbers working for him. (Andre is not one of them.) Each barber is paid $9.90 per hour and works a 40-hour week and a 50-week year, regardless of the number of haircuts. Rent and other fixed expenses are $1,750 per month. Assume that the only service performed is the giving of haircuts, the unit price of which is $12. Andre has asked you to find the following information.
Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost.

1.Determine the annual break-even point, in number of haircuts.

2.What will be the operating income if 20,000 haircuts are performed?

3.Suppose Andre revises the compensation method. The barbers will receive $4 per hour plus $6 for each haircut. What is the new contribution margin per haircut?

4What is the annual break-even point (in number of haircuts)?

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Solution Summary

The solution explains the calculation of break even using Andre Hair Stylling example

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The contribution margin is the difference between revenues and variable costs. In this instance all costs are fixed and therefore contribution margin is the same as revenue or $12 per unit.

1. At the break even point, total costs equal total revenues. From the attached file we see that fixed costs per ...

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