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Planning and Budgeting

Essay by review  •  April 20, 2011  •  Essay  •  940 Words (4 Pages)  •  813 Views

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Relevant information

Barbers 5

Hour pay 9.90

Week 40 hours

Weeks 50 year

Rent and fixed expenses 1,750 month

Shampoo .40 per client

Hair cuts 12.00

Barbers 5*9.90=49.5 hour

Week 40*49.5hour=1,980 total payroll week

Total payroll week 1,980*50=99,000 total yearly wages

Total expenses 1,750*12=21,000 per year

Total fixed expenses 99,000+21,000=120,000

1. Contribution Margin

Unit Sales Price $12.00

- Unit Variable Cost .40

= Unit Contribution Margin $11.60

2. Annual Break-even Point (Haircuts)

In order to find the break even point one must take total yearly expenses (120,000) and divide them by the unit contribution margin (11.60). This business must generate enough sales to equal total fixed costs. By finding the break-even point they know how many haircuts need to be given in order for the business to survive. Each barber must give approximately 42 haircuts a week to make this goal.

120,000/11.60=10344.83 or 10345 break-even point

3. 20,000 Haircuts

Fixed costs 99,000+ 21,000=120,000

Variable costs .40*20000=8,000

Total costs 120,000+8,000=128,000

Total Revenue 20,000*12=240,000

Operating income 240,000-128,000=112,000

4. Change in compensation method

Barbers 5

Hour

...

...

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