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# Andre has asked you to evaluate his business, Andre's Hair Styling

For this speech you should select a company/business that you are familiar with and briefly describe it. Give three examples of responsibility centers in that business. Describe how these responsibility centers interact.

Andre has asked you to evaluate his business, Andre's Hair Styling. Andre has five barbers working for him. (Andre is ot 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.

1. Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost.

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

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

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

#### Solution Preview

1. Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost.

This case is quite special, because each barber is paid regardless of the number of haircuts, so their salary is part of fixed cost, not variable cost.

Therefore, there's no variable cost involved. We have to make VC=0, then from the formula:
CM = Unit Price - Variable cost =12-0 = \$12

2. Determine the annual ...

\$2.19