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Andre

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Submitted By adrienne282
Words 393
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Introduction
Contribution margins tells us how to measure how sales affect net income or profits (Wild & Shaw, 2014).Andre has opened up is own barber shop and he wants me to help him figure out how many haircuts he needs in order to break even. For this problem I will use the contribution margin formula along with the breakeven point.
First we want to extinguish what our revenues and variable expenses. The formula for contribution is Revenues – Variable Expenses. Revenue is the sales and variable expenses are things that continue to change. Assuming the compensation is a fixed cost, so all we have left is the shampoo which is the variable cost ($ 0.40 per client). Us in the formula $12 - .04 = 11.60. The contribution margin is $11.60 .We know the workers get paid $ 9.90/ hour with 40-hour week and a 50-week year. We have to multiply 40 hours * 50 week * 9.90 and get $19,800/ per one barber can make. I multiplied 19,800 * 5 = 99,000 for the total compensation of the barbers. Rent and other fixed expenses are $1,750 per month. Multiply 1,750 * 12 = 21,000 a year.
Now we have total fixed costs which is $120,000 (99,000 + 21,000). To find the break-even point of haircuts we use the break-even formula which is Fixed Costs/Unit Contribution Margin.
120,000/11.60 = 10,344.8 haircuts.
Assuming that barbers gave 20,000 haircut the operating income will be $112,000.
If he revised the compensation to $6. The variable cost would be $6.40 (.4 + 6). The contribution margin is $5.60 (12 – 6.4). The fixed cost is $61,000 (1750*12) + (4*40*50*5). The break-even is 10,982.9 haircuts (61,000/11.60).
Conclusion
Conclusion
Contribution margin helped Andre see how much his business is profiting. The contribution for the first half was $11.60, break-even was 10,344.8 haircuts. Assuming that 20,000 haircuts were given the operating income is $112,000. If the barbers

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