Telly Savalas owns the Bonita Barber Shop. He employs four 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 $4.50 per haircut.
Other costs are as follows.
Advertising $200 per month
Rent $1,100 per month
Barber supplies $0.30 per haircut
Utilities $175 per month plus $0.20 per haircut
Magazines $25 per month
Telly currently charges $10 per haircut.
Instructions
(a) Determine the variable costs per haircut and the total monthly fixed costs.
(b) Compute the break-even point in units and dollars.
(c) Prepare a CVP graph, assuming a maximum of 1,800 haircuts in a month. Use increments of 300 haircuts on the horizontal axis and $3,000 on the vertical axis.
(d) Determine net income, assuming 1,700 haircuts are given in a month.