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Breakeven point and net income

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