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    Breakeven point and net income

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    Matt Reiss owns the Fredonia Barber Shop. He employs five barbers and pays each a base rate of $1,000 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 $5.50 per haircut.

    Other costs are as follows.

    Advertising $200 per month
    Rent $900 per month
    Barber supplies $0.30 per haircut
    Utilities $175 per month plus $0.20 per haircut
    Magazines $25 per month

    Matt currently charges $10 per haircut.
    Determine variable and fixed costs, compute break-even point, prepare a CVP graph, and determine net income.

    (a) Determine the variable cost per haircut and the total monthly fixed costs.

    (b) Compute the break-even point in units and dollars.

    (d) Determine net income, assuming 1,900 haircuts are given in a month.

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    Solution Preview

    a. The variable costs are
    Commission $5.50 per haircut
    Barber supplies $0.30 per haircut
    Utilities $0.20 per haircut
    Total variable cost = $6.00per haircut
    The fixed monthly ...

    Solution Summary

    The solution explains how to calculate the breakeven units and the net income given the units sold