Andre’s Hair Styling Business Assignment Help
Andre considered the barbers’ compensation ($9.90 per hour), as a fixed cost and the only variable cost in the business is cost of hair shampoo that is $0.40 per client. It shows that the variable cost is too low in the business as compared to fixed cost and it is the reason that the contribution is too high in the company which is $11.60. At the same time, the company has a total fixed cost of $120,000 including barbers’ expenses and rent and other fixed expenses. In order to identify the relationship among sales revenue, variable cost and fixed cost, break-even point is analyzed for the business.
As per Business case study assignment help, this point presents the minimum volume at which production can be profitable (Jackson, Sawyers & Jenkins, 2008). Break-even point for Andre’s Hair Styling is 10345 haircuts. It means that Andre will have to perform 10345 haircuts annually to reach the break-even point. If 20,000 haircuts are performed by the company in a year, then the total operating income in the business will be $112,000 (See Attached Excel). It shows that the company can earn significant profits by performing 20,000 haircuts in a year. If Andre revises the compensation method and will pay barber $4 per hour (assumed as fixed cost) plus $6 for each haircut (assumed as variable cost), it will change the contribution margin and annual break-even point for the company.
It is the reason that new method will decrease the total fixed expenses and increase the total variable cost. Further, increase in variable cost, cause to decrease in the contribution margin for Andre’s Hair Styling (See Attached Excel). At the same time, it will also increase the break-even point ($10893) for the company due to decrease in fixed cost and increase in variable cost (Albrecht, Stice, Stice & Swain, 2010). On the basis of above analysis, it can be stated that Andre should not revise the compensation method, as it will enhance the break-even point for the company from 10,345 to 10,893 points. It means Andre will have to perform more haircuts to reach in the position of no profit and no loss. References Albrecht, W. S., Stice, E. K., Stice, J. D. & Swain, M. R. (2010). Accounting: Concepts and Applications. USA: Cengage Learning. Jackson, S. R., Sawyers, R. B. & Jenkins, J. G. (2008). Managerial Accounting: A Focus on Ethical Decision Making. USA: Cengage Learning. Get 24X7 business assignment help services of any topic. 100% original paper within the deadline. Contact Us Now !!