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The Brooks Salon The Brooks Salon Authored by: Copyright 2013 Valerie Care MHR0050 29 Christopher Brooksjust finished interviewing the last candidate for his new salon. He is hoping to hire six estheticians, professionally trained staff who could provide a wide variety of services including relaxation massage, facials, manicures and pedicures. Before he bought the property and set up his company, Christopher did a lot research. He knows there is a growlng demand for the services that the Brooks Salon can offer and he is excited about the opportunity to launch his own business. Christopher's wife, Jennifer, helped him compile a lot of data about the prices and services offered by other salons in the area by going to each of the three existing businesses for services over the past year. She laughed as she explained that was her contribution to the business. \"Dirtyjob, but someone has to do it!" One thing Jennifer noticed in her research was that customers liked going to the same esthetlcian and may change salons if the person leaves. To reduce the risk of losing staff to another salon, Christopher plans to offer his staff a starting salary of $25 with the expectation that they could work up to 40 hours each week. That would give staff an annual base salary of approximately $50,000 before gratuities. The salon will be open six days a week with each employee working ve of those six days. Christopher hopes to be able to have at least five estheticians working each day, allowing each employee to have a set day off in addition to Monday when the salon will be closed. This will give the salon a maximum of 240 direct labour hours per week. Staff will receive the same hourly rate no matter what service they provide. Massages will be offered in 30 minute and 60 minute sessions. Christopher believes that the salon can make more money on the hour-long sessions and has priced those sessions at what he calls a discounted rate to entice customers to book the longer sessions. 30 minute 60 minute relaxation relaxation massage massage Facial Manicure Pedicure Revenue 55.00 85.00 100.00 45.00 65.00 Variable costs Direct labour 12.50 25.00 25.00 18.75 25.00 Direct material 5.00 5.00 30.00 10.00 10.00 Variable overhead 6.25 12.50 12.50 9.38 12.50 With a limited amount of direct labour hours available each week, Christopher wants to know if he is correct in his belief that the company will make the most money through the one hour sessions. He is preparing advertisements for the opening of the salon and wants to focus on the services that will make the most income for the estheticians' time. ChristOpher does not want to eliminate any services. His wife's research indicates that people are looking for a full service salon. He may hire additional staff at a lower rate to provide service on some treatments so his regular staff can focus on the things that provide the company with the highest contribution margin. His preliminary estimates are that the demand for the 30 minutes massage will be 90 sessions per wee and that the demand for the hour long massage will be 60 sessions per week. His wife thinks the salon can do a good business in manicures and pedicures and has suggested Christopher expect to do 100 manicures and 7S pedicures each week. They estimate the demand for facials may fluctuate dependin on the time of year but to start, they expect to see 55 sessions per week. Required: 1. Determine what services will provide the salon with the highest contribution margin considering the limited number of direct labour hours each week. ls Christopher correct in his belief that hour long sessions will be the most profitable? 2. if the company hires part-time staff at $17.50 per hour, determine how many hours they may have to work each week to meet expected demand for service. 3. What would the weekly income be if the company chose to maximize net income using part time staff forthe services with the lowest contribution margin per direct labour hour? 4. What qualitative issues should Christopher consider in his plans