Operating income and break even pointAndre has asked you to evaluate his business, Andre’s Hair
Styling. Andre has five barbers working for him. (Andre is not 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. Show calculations to support your answer.2. Determine
the annual break-even point, in number of haircuts. Support your answer with an
appropriate explanation.3. What will
be the operating income if 20,000 haircuts are performed? Show calculations to
support your answer.
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)? Show calculations to
support your answer.
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