Need help with Managerial Accounting (quick)?
My teacher just throw us a problem on managerial accounting, and I don’t know what to do…
Tracy’s Trims is a hair salon that specialized in trims that maintain customers’ hairstyles. The only service available at Tracy’s Trims is minor variations on a “20 minute” haircut for which the customer is charged $10. The shop has five (5) newly trained “trimmers.” (Tracy does not work in the salon. And, as owner/entrepreneur, she takes no salary.) Each trimmer is paid an annual salary of $18,000. All equipment is leased on an annual basis including store fixtures at $2,500 per year, and haircutting equipment at $2,000 per year. Building space is leased at a rate of $500 per month. Tracy is concerned about the salon’s cost structure and seeks your advice.
She ask us to:
1. Compute the contribution margin per haircut.
2. Compute the annual break-even point in number of haircuts.
I know the CM per unit formula, but I have no idea how to find the Variable Cost per hair cut, please help..
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Filed under: Entrepreneur Training
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The reason you can’t find variable costs is because there is none. There are no directly associated costs per haircut indicated above. All costs are relatively fixed, since even if she sells zero haircuts she has to pay for all those expenses above. Therefore, the contribution margin is $10.
So normally the breakeven point is: (P-VC)Q=FC. Take away VC and the equation is now PQ=FC. Therefore, the quantity needed is the fixed costs divided by price. The annual breakeven point in this case is 10,050 haircuts per year.
why don’t you take your future homework questions to the homework section!!!!