Hair Styling Business

1065 Words5 Pages
When looking to optimize one’s business it is important to know where one’s money is going and where it is coming from at all times. Andre’s Hair Styling salon has come forward to have the business evaluated. Andre, the owner, would like to know how his business is going and where his costs are being incurred. His monthly fixed costs are $1,750 per month for rent and other fixed costs. He has in his employment 5 barbers who work 50, 40-hour weeks, for $9.90 per hour, regardless of the amount of business that has come in. The salon only offers haircuts which has a fixed price at $12, each customer receives a $0.40 shampoo in that fixed price as well. With this simple set up in his business, he wants to know some facts about his salon. Income | Price Per Haircut | $12.00 | Costs | Shampoo | $0.40 | Barber's Wage | $9.90 | Totals | Income | $12.00 | Costs | $10.30 | Contribution Margin | $1.70 | Andre wants to know what his contribution margin per haircut is. The first thing to do is assume that the barber’s compensation is a fixed cost per haircut. Andre pays his barbers $9.90 per hour which becomes the fixed cost (Shaw & Wild, 2012). We add to the total cost a cost of $0.40 for the included shampoo. This brings the total cost per hair cut to $10.30. The fixed price per unit is $12.00 which the $10.30 is subtracted from. The contribution margin per haircut is therefore $1.70. This is assuming that a barber only does one haircut per hour, if this rate is increased so is the contribution margin (Shaw & Wild, 2012). Next Andre is curious as to how many haircuts his salon must do in order to break even at the end of the year. The first cost is the $1,750 that the salon incurs each month for fixed costs. This fixed cost amounts to $21,000 annually when the monthly cost is multiplied by 12 for the months. Next, each barber works 2,000 hours a

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