Andre’s Hair Styling in Jamaica has five barbers. Each barber is paid $9.90 per hour and works 40 hours per 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. Required: a. Find the contribution margin per haircut. Assume that the barbers’ compensation is a fixed cost. b. Determine the annual break-even point in number of haircuts. c. What will be the operating income if 20,000 haircuts are sold? d. 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)? e. Ignore requirements c and d and assume that the barbers cease to be paid by the hour but receive $7 for each haircut. What is the new contribution margin per haircut? The annual break-even point (in number of haircuts) f. Refer to requirement e. What would be the operating income if 20,000 haircuts are sold? Compare your answer with the answer in requirement c. g. Refer to requirement e. If 20,000 haircuts are sold, at what rate of commissions would Andre earn the same operating income as he earned in requirement c.
Andre’s Hair Styling in Jamaica has five barbers. Each barber is paid $9.90 per hour and works 40 hours per 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.
Required:
a. Find the contribution margin per haircut. Assume that the barbers’ compensation is a fixed cost.
b. Determine the annual break-even point in number of haircuts.
c. What will be the operating income if 20,000 haircuts are sold?
d. 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)?
e. Ignore requirements c and d and assume that the barbers cease to be paid by the hour but receive $7 for each haircut. What is the new contribution margin per haircut? The annual break-even point (in number of haircuts)
f. Refer to requirement e. What would be the operating income if 20,000 haircuts are sold? Compare your answer with the answer in requirement c.
g. Refer to requirement e. If 20,000 haircuts are sold, at what rate of commissions would Andre earn the same operating income as he earned in requirement c.
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