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Vin Diesel owns the Fredonia Barber Shop. He employs four barbers and pays each a base rate of $1,250 per month. One of the barbers serves as the manager and receives an extra $500 per month. In addition to the base rate, each barber also receives a commission of $4.50 per haircut.

Other costs are as follows.

• Advertising $200 per month
• Rent $1,100 per month
• Barber supplies $0.30 per haircut
• Utilities $175 per month plus $0.20 per haircut
• Magazines $25 per month

Vin currently charges $10 per haircut (this is the sales price per haircut).

Instructions

1. Determine the variable costs per haircut and the total monthly fixed costs.
   1. Variable Cost per Haircut = $5 ($4.50 commission + .20 Utilities + .30 Supplies)
   2. Fixed Cost = Focus on the Per Month amounts in the fact pattern
2. Compute the break-even point in units and dollars.
3. Prepare a CVP graph, assuming a maximum of 1,800 haircuts in a month. Use increments of 300 haircuts on the horizontal axis and $3,000 on the vertical axis (this can be hand drawn or completed in Excel)
4. Determine net income, assuming 1,600 haircuts are given in a month.