The Peace Barber Shop employs four barbers. One barber, who also serves as the manager, is paid a salary of $3,900 per month. The other barbers are paid $1,900 per month. In addition, each barber is paid a commission of $2 per haircut. Other monthly costs are as follows: store rent $700 plus 60 cents per haircut; depreciation on equipment $500; barber supplies 40 cents per haircut; utilities $300; and advertising $100. The price of a haircut is $11.

Instructions

a. Determine the variable cost per haircut and the total monthly fixed costs.

b. Calculate the break-even point in units and dollars.

break-even in units, 1,400

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 $5,000 increments on the vertical axis.

d. Determine the operating income, assuming 1,700 haircuts are given in a month.