Andre's Hair Styling- Business

Topics: Variable cost, Costs, Management accounting Pages: 2 (615 words) Published: April 22, 2011
For this week’s assignment we were given the following scenario: Andre 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. Hair shampoo used on all clients is .40 per client. Assume that the only service performed is the giving of haircuts (including shampoo), the unit price of which is $12. Andre has asked you to find the following information and explain our answers. 1.Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost. Show calculations to support your answer. Given the information provided in the above scenario I was able to calculate the Contribution Margin using the following formula (CM=sales price per cut (minus) Total variable costs per cut. Based upon this calculation the CM is $.40 (price of shampoo). This is deducted because this is the only variable that is affected when the number of cuts is increased or decreased. 2.Determine the annual break-even point, in number of haircuts. Support your answer with an appropriate explanation. Show calculations to support your answer. In order to calculate the annual break-even-point for Andre’s Hair Styling using the information provided I had to utilize the formula BEP=fixed costs divided by contribution margin per cut. The results of my calculations were 10,345. What this number represents is the number of haircuts that must be completed in order for Andre’s Hair Styling to break even and anything more will result in a profit for the company. 3.What will be the operating income if 20,000 haircuts are performed? Show calculations to support your answer. For this question Andre wanted to know if his barbers were able to complete 20,000 cuts how this would affect his business. To begin determining this I needed to...
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