Tracy Stevens opened a hair salon, named Tracy Trims specializing in trims that maintain customers hairstyles. The only service available at Tracys Trims is minor variations on a 30 minute haircut for which the customer is charged $20. The shop has five (5) newly trained trimmers. (Tracy does not work in the salon. And, as owner/entrepreneur, she takes no salary.)

Her annual cost structure is as follows:

Trimmer annual salary (per person): $36,000

Leases equipment cost per year: 2,400

Store fixtures depreciation per month 400

Hair cutting supplies per year 1,500

Salon Lease per month 2,000

Utilities per month on average 200

Tracy is looking at her cost structure and is concerned about making a profit. She is looking at three options:

Option 1: All cost remain the same as shown above

Option 2: The landlord has given her the option to pay $1000 per month rent plus 20% of the monthly total revenue.

Option 3. Pay the trimmer a 50% commission on each hair cut instead of the annual salary.

Option 4: both Option 2 and Option 3 together

Option 5: If all costs remain the same as shown above in option 1, and Tracy introduces a new 1-hour service called wash, cut, and style and can charge $50 for this service, monthly demand for this service is 80 bookings. How many Tracy Trims and wash, cut, and Style should the business try to book each month?

Instructions: discuss with your group-

1. For each option make a list of the variable and fixed cost

2. Calculate the break-even point in number of haircuts.

3. Calculate the net income per month use your own sales projections! What happens if all 5 employees are fully booked 5 days a week, which option gives the most profit? What if sales are not good and employees are not fully booked?)

4. Discuss with your group what are the advantages and disadvantages of each option (e.g. what happens when the salon makes lots of sales vs small amount of sales.).