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.

Find the contribution margin per haircut. Assume that the barbers’
compensation is a fixed cost. Show calculations to support your
answer.
Determine the annual break-even point, in number of haircuts.
Support your answer with an appropriate explanation. Show
calculations to support your answer.
What will be the operating income if 20,000 haircuts are performed?
Show calculations to support your answer.
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.

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