Reference no: EM132815605

Problem 1 - The Sasoon Barber Shop employs four barbers. One barber, who also serves as the manager, is paid a salary of $3,000 per month. The other barbers are paid $1,500 per month. In addition, each barber is paid a commission of $3 per haircut. Other monthly costs are store rent $700 plus 60 cents per haircut, depreciation on equipment $400, barber supplies 40 cents per haircut, utilities $300, and advertising $100. The price of a haircut is $10.

Instructions -

(a) Determine the variable costs per haircut and the total monthly fixed costs.

(b) Compute the break-even point in units and dollars.

(c) Prepare a CVP graph, assuming a maximum of 1,800 haircuts in a month. Use increments of 300 haircuts on the horizontal axis and $3,000 increments on the vertical axis.

(d) Determine the net income, assuming 1,800 haircuts are given in a month.

Problem 2 - All Frute Company bottles and distributes Frute Ade, a fruit drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 70 cents per bottle. For the year 2014, management estimates the following revenues and costs.

Sales $2,500,000 Selling expenses-variable $80,000

Direct materials 360,000 Selling expenses-fixed 250,000

Direct labor 450,000 Administrative expenses - variable 40,000

Manufacturing overhead - variable 270,000 Administrative expenses fixed 380,000

Manufacturing overhead - fixed 150

Instructions -

(a) Prepare a CVP income statement for 2014 based on management's estimates. (Show column for total amounts only.)

(b) Compute the break-even point in (1) units and (2) dollars.

(c) Compute the contribution margin ratio and the margin of safety ratio.

(d) Determine the sales dollars required to earn net income of $624,000.