Andre’s Hair Styling

Consider the following scenario:

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 $0.40  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. 

Using the information provided, provide a memo to Andre explaining  the completed analysis and how he should use this information to monitor  the operations of the barber shop.  The memo should explain the cost  associated with the barber shop including their relationships.