# Responsibility Centers and financial control

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 Preview

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 ...

#### Solution Summary

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