Andre's Hair Salon

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  • Topic: Variable cost, Management accounting, Costs
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  • Published : July 3, 2011
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Managerial Accounting Project 4
Jake Thomas

Managerial Accounting Project 4
For this particular project, I have been asked to evaluate Andre’s Hair Styling business so that the best decisions can be made. In evaluating Andre’s Hair Styling, 4 pieces of information are required in order to provide the business with a clear picture thus helping business to determine what adjustments need to take place. When making this assessment, in is important to keep in mind that Andre has 5 employees and he is not one of the five. Let’s begin with the first question that Andre needs an answer to. 1. Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost. Show calculations to support your answer. Keep in mind that the barbers’ compensation is a fixed cost. Also to be noted is the fact that there is a $0.40 standard shampoo rate (variable cost) that must be deducted from the $12.00 unit price per haircut. The contribution margin per haircut is $11.60. ($12.00 - $0.40 = $11.60)

2. Determine the annual break-even point, in number of haircuts. Support your answer with an appropriate explanation. Show calculations to support your answer. I will first break down the calculations of one barber.

($9.90*40*50 = $19,800.00)
Now, here’s the total of all 5 barbers.
($19,800*5 = $99,000.00)
Now let’s take a look at the fixed expenses including rent. ($1,750.00 per month = $1,750.00*12 = $21,000.00 per year)
Finally, let’s take a look at the total (fixed costs).
($99,000.00 + $21,000.00 = $120,000.00)
So what is the break-even point? Let’s take a look.
$120,000 (Fixed costs)/$11.60 (UCM)=10,344.8275 or 10,344.8 total haircuts 3. What will be the operating income if 20,000 haircuts are performed? Show calculations to support your answer. Total haircuts: (20,000*$12.00=$240,000.00)

Variable: (20,000*$0.40=$8,000.00)
Unit Contribution Margin=($20,000*$11.60=$232,000.00)
Total of barbers’ compensation=($99,000.00)...
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