Subject: Business    / Accounting    

Question

P5-1ATelly Savalas owns the Bonita Barber Shop. He employs four barbers and pays each a base rate of $1,000 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 commis- sion 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 Telly 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 incre- ments of 300 haircuts on the horizontal axis and $3,000 on the vertical axis.

(d) Determine net income, assuming 1,700 haircuts are given in a month.