10/30/23, 8:16 PM
Chapter 4 Post-Class Homework
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CHAPTER 4 - Cost-Volume-Profit Analysis
/ Chapter 4 Post-Class Homework
Question 6
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Hairs to You provides special-occasion haircuts and generates average revenue of $56 per customer. The salon’s fixed
costs are $50,000 per year, which include rent, utilities and magazine subscriptions. Its variable costs are $22.40 per
customer. Target operating profit for the year is $93,000.
Do not enter dollar signs or commas in the input boxes.
a) Calculate the revenues needed to obtain the target operating profit.
Round the Contribution Margin ratio to 2 decimal places. Round all other answers to the nearest whole number.
CM ratio: %
Required CM: $
Revenue: $
b) How many haircuts have to be provided to earn an operating profit of $65,000? To break-even?
Round up to the nearest whole unit.
BEP: Haircuts to yield $65,000: c) Calculate the operating profit if 2,900 haircuts are provided.
Round to the nearest whole number.
Operating Profit: $
Explanation
a) CM ratio: = ($56 - $22.40) ÷ $56 = 60.00%
Required CM: = $93,000 + $50,000 = $143,000
Revenue: = $143,000 ÷ 60.00% = $238,333
b) BEP: = $50,000 ÷ ($56 - $22.40) = 1,489
Haircuts to yield $65,000: = ($50,000 + $65,000) ÷ ($56 - $22.40) = 3,423
c) Operating Profit: = 2,900 x ($56 - $22.40) - $50,000 = $47,440
