Chapter 5, Problem 5.1AP

Vin Diesel owns the Fredonia Barber Shop. He employs four barbers and pays each a base rate of $1,250 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

Vin 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 1,600 haircuts are given in a month.