Juanita Testor owns and operates a hair salon under the name Clips n' Curls. There are currently seven hair stylists, including Juanita. In addition to hair styling, Clips n' Curls sells nail care, facials, skin and hair care products, fashion jewelry, and tanning bed time.

A full-time receptionist is employed to arrange appointments and perform other clerical duties, such as counter sales and record keeping. The receptionist is paid \(\$ 1,500\) a month.

Juanita has eight styling bays, each equipped with a sink, cabinet, and vacuum system. Each stylist provides his or her own instruments. Each stylist, including Juanita, "rents" a bay at a cost of \(\$ 400\) per month. Charges for all client services are billed and collected by the receptionist, who accumulates totals for each stylist. Collections for services are paid to the stylists on a weekly basis after deducting bay rent and cost of supplies. Any supplies used by the stylists must be purchased through the shop at Juanita's cost.

Nail care and facials are offered on a limited basis three days a week by a single individual, who receives \(50 \%\) of collected billings as compensation. The tanning bed is owned by the shop. All income received from the bed goes to the shop. Variable shop costs are incurred based on the number of stylists. Based on a two-year study, Juanita has assembled the following information on monthly activity and costs to operate Clips n' Curls:

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A. Assume that Juanita can hire an additional stylist who can generate the same average amount of business as the other stylists. Assume also that the additional stylist would have no impact on administrative expenses. What would be the change in average monthly shop income if Juanita hires the stylist to fill the remaining open bay? (Hint: Compare the change in revenues with the change in costs related to the incremental increase of one stylist.)
B. What is the average total monthly income of the shop given the number of stylists currently employed?
C. Juanita is considering a change in the bay rent agreement. Instead of charging a fixed amount per month, she is thinking of charging a stylist \(12 \%\) of the stylist's billings. Would Juanita be better off with this new fee arrangement? Explain your answer.

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Average monthly billings per stylist Average product sales Average gross margin on product sales Average gross nail and facial billings Average gross tanning bed billings Fixed operating costs: Shop rent Depreciation $4,000 600 55% $1,000 450 500 400 150 100 Advertising Other Variable operating costs: Maintenance, utilities, and other 1,400