Bryan owns the Freedom Barber Shop. He employs four barbers and pays each a base rate of $1,250 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 commission 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

Bryan currently charges $10 per haircut.

Instructions

(a), Determine the variable costs per haircut and the total monthly fixed costs.

VC $5

(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 increments of 300 haircuts on the horizontal axis and $3,000 on the vertical axis.

(d), Determine net income, assuming 1,600 haircuts are given in a month.