Purchase Solution

Calculating Contribution Margin and Breakeven Point

Not what you're looking for?

Ask Custom Question

Andre has asked you to evaluate his business, Andre's Hair Styling. Andre has five barbers working for him. (Andre is not one of them.) Each barber is paid $9.90 per hour and works a 40-hour week and a 50-week year, regardless of the number of haircuts. Rent and other fixed expenses are $1,750 per month. Hair shampoo used on all clients is .40 per client. Assume that the only service performed is the giving of haircuts (including shampoo), the unit price of which is $12. Andre has asked you to find the following information.

1. Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost. Show calculations to support your answer.
2. Determine the annual break-even point, in number of haircuts. Support your answer with an appropriate explanation. Show calculations to support your answer.
3. What will be the operating income if 20,000 haircuts are performed? Show calculations to support your answer.
4. Suppose Andre revises the compensation method. The barbers will receive $4 per hour plus $6 for each haircut. What is the new contribution margin per haircut? What is the annual break-even point (in number of haircuts)? Show calculations to support your answer.

Purchase this Solution
Solution Summary

Solution describes the steps needed to calculate contribution margin and breakeven point for the given scenario. It also analyzes the effect of a new compensation method on break even quantity.

Solution Preview

Solution:

1. Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost. Show calculations to support your answer.

Price of a haircut=$12
Variable Cost of a haircut=shampoo cost per client=$0.40
Contribution Margin per haircut=Price per haircut-Variable Cost per haircut
=12-0.40=$11.6
Each haircut will have a contribution margin of $11.6

2. Determine the annual break-even point, in number of haircuts. Support your answer with an appropriate explanation. Show calculations to support your answer.

Annual Rent and other ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

View More Free Quizzes
Related BrainMass Solutions

  • Calculating breakeven point for two product lines

    Calculating breakeven point for two product lines; margin of safety The contribution margin income statement of Cosmic Donuts for March 2012follows: COSMIC DONUTS Contribution Margin Income Statement For the month of March 2012 Sales revenue $127,000

  • Breakeven Point

    sales volume is 500,000 units The formula for calculating breakeven units is Fixed Cost/Unit Contribution Margin Unit Contribution Margin = Selling Price - Variable cost = 4-3 = $1 Fixed cost = 500,000 Breakeven units = 500,000/1 = 500,000 (same

  • Edwards Co. Contribution margin income statement breakeven

    442636 Contribution margin format income statement / Calculating Break even-point Prepare a contribution margin format income statement-calculate break-even point. Presented here is the income statement for Edwards Co. for February.

  • Variable Costing Unit Product Cost and Income Statement

    This is used in calculating the breakeven units.

  • Breakeven point in dollar sales and composite units

    Break-Even Points Sales Units Sales Dollars Red at break-even $ White at break-even $ Blue at break-even $ When there are two or more products and a common fixed cost, the breakeven is determined by calculating the weighted average contribution margin

  • Breakeven and Target Profit

    This is calculated as Breakeven units = Fixed Costs/Contribution Margin per unit This is because at breakeven units - Fixed Costs = Total Contribution margin (contribution margin per unit X units) Contribution margin per unit = selling price per unit

  • Cost Analysis- Break Even Point

    to maintain the original break-even point, then the selling price per unit would have to be increased to: contribution margin in first case = (144-80)=$64 break even point = fixed costs/contribution margin = 80000/64=1250 Now revised fixed costs

  • Break even analysis

    the break even point in units and dollars using contribution margin per unit, equation method, contribution margin ratio.

  • Contribution Margin and Breakeven Point

    Breakeven point in dollars = fixed cost/contribution margin ratio breakeven point in dollars = 3,400,000/0.4 = $8,500,000 (d) Compute the margin of safety and margin of safety ratio.

  • Calculating CM Ratio, breakeven sales and operating leverage

    240332 Calculating CM Ratio, breakeven sales and operating leverage Refer data given below: MARJOLEIN & CO.

View More Related Solutions