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 Help Claire work through the following scenarios to determine how her breakeven point is affected by each situation. Using the Claire Bufont computer spreadsheet, enter the following data and answer the questions below. What is the total amount of Claires overhead expenses? What is the cost of the product per unit? How many haircuts must the business do per month and per week to breakeven? 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 breakeven point (BEP) for the business? Assume Claire withdraws $1,800 per month. Claire wants to understand what would happen to her breakeven point if average sales increase or decrease. What happens to the BEP if the average sale for a haircut or styling is only $15? What happens if it is increased to $25? Claire decides to keep her forecast for average sales price for haircuts at $20. She now wants to know what would happen to her BEP is she increases her marketing efforts and as a result sells more hair care products. What happens when the percentage of sales from cuts and styles decreases to 60% and hair care products increases to 40%? Claire decides to revisit her original plan where 90% of sales are from haircuts and 10% from the sale of hair care products. What advice would you give to Claire about opening the business? How did the BEP analysis tool help you in making this recommendation? Did the tool save time, or could you have completed the calculations without the tool?