1.1 Kristen Larson just graduated at the top of her massage class from the Aveda Institute in Des Moines, IA. Her plan is to move to Sioux City, IA, for at least five years so she can spend time with her elderly grandparents and gain experience before branching out into a top salon in a large city.

Upon graduation, Kristen received a job offer from Belle Touché, an Aveda Salon and Spa in Sioux City, for $60,000 dollars (including salary and health insurance). Kristen would have to work Tuesday through Saturday from 9 a.m. to 6 p.m. for 50 weeks out of the year. The salon would pay for all of Kristen’s supplies and equipment, but she would need to put 20 percent of her tips each day into tipshare for the front desk and clean-up employees. Tips are estimated at $10,000 per year.

Kristen also is considering using her $7,500 savings to be her own boss so she can work fewer and more flexible hours. For $125 per week ($6,500 per year), she can rent a room at Salon Volume, but she would have to provide her own supplies, equipment, and health insurance. She plans to schedule massages for 25 hours per week at an average rate of $60 per hour and spend 5 hours per week on other business duties (scheduling, bookkeeping, cleaning, purchasing, etc.) for 50 weeks of the year. Tips average 15 percent of the cost of services, and the cancellation rate (when a client makes an appointment but ultimately cancels, leaving the time slot unfilled) is 5 percent.
Kristen’s estimated costs are detailed below.
• Massage table: $1,500 (one-time expense)
• Lotions, oils, linens, candles, and other supplies:
$150 per month • Remaining on her parents’ health insurance (she is only 20): $100 per month • Advertising: $60 per month • Liability insurance: $50 per month If Kristen takes the job at Belle Touché, she will be able to earn 2 percent interest on the money in her savings account. If she decides to work for herself, she will have 10 more hours of leisure each week, which she values at $20 per hour.
Calculate Kristen’s annual economic profit for each alternative using the template provided.
(Please note that each cell may not have an entry for both options.) Which option should she choose based on her economic profit?
Are there aspects of this situation that might change Kristen’s decision that haven’t been discussed?

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Accompanies problem 1.1. 1 A 2 Salary/Total Revenue 3 Tips 4 Interest Received 5 Value of Leisure Time 6 TOTAL ECONOMIC BENEFIT 7 One-Time Expenses 8 Rental Expenses 9 Monthly Expenses 10 Cancellation Expenses 11 TOTAL ECONOMIC COST 12 TOTAL ECONOMIC PROFIT 13 B C Belle Touch Salon Volume