CLAIRE BUFONT

Claire Bufont is a student at the local community college in Red Oak, Montana. Since graduating from the cosmetology program last spring, Claire has been working as a stylist at Le Chic Boutique in nearby Big Stone Gap. She has always dreamed of having her own business and took the business class to help her decide if opening a salon in the community is a good idea.

The salon would be Claires only source of income, and she would need at least $2,300 a month to cover living expenses (including federal and state taxes) for herself and her six-year old son. She has tracked her sales at her current job and expects that, on average, a person will spend $20 to get their hair cut and styled. She also anticipates additional sales, ten percent of the total, to come from hair care products that average $9 per sale. The cost of the hair care products sold averages 50% of the sales price. She expects to be open 5 days/week, 8 hours per day.

Claire will need to borrow $7,500 to purchase equipment and fixtures for two styling stations. The loan repayment has been estimated at $265 per month (amortized over three years at 13.5%). Through research, Claire gathered the following data concerning other startup and operating costs.

Rent $550.00 month

Advertising $ 75.00 month

Loan Payment $265.00 month

Telephone $ 45.00 month

Utilities $140.00 month

Insurance $ 48.00 month

Supplies $150.00 month

Owner's Draw $2,300.00 month

Fees/Permits $ 10.00 month

Complete all parts of the question:

A.) The total amount of Clair Bufont's overhead is $3,583.00 while The Cost of Goods Sold per unit is: __________

B.) Claire must complete ______ haircuts per month and ______ per week.

C.) Claire carefully analyzes her personal budget and determines that she can reduce her living expenses to $1,800 per month. How will this decrease in owners draw affect the break-even point (BEP) for the business?

D.) Assume Claire withdraws $1,800 per month. Claire wants to understand what would happen to her breakeven point if average sales increase or decrease. Notice what happens to the BEP if the average sale for a haircut or styling is only $15. Claire will have to make ________ haircuts per month at $15. What happens if it is increased to $25? Claire with have to make _________ haircuts per month at $25.

E.) What happens when the percentage of sales from cuts and styles decreases to 60% and hair care products increases to 40% if she keeps her haircut price at $20.00?