2. Number of haircuts for annual breakeven point

Breakeven point is the point where the total income from the performed activity equals the total sum of the fixed expenditure per year. In this case, it is the point where the total income from the haircuts equals the total fixed expenditure per year.

We must therefore calculate the total expenses per year, which is given as the sum of Barbers expenses per year and other expenses.

Barbers expenses

Total expenses from workers per hour = 5 X 9.9 = $ 49.5

Workers expense per week = 49.5 X 40 = $1980

Workers expense in a year =1980 X 50 = $99000

Other expenses

Add: Rent and other expenses (1750 X12) $21000

Total annual expenses

= $120000

Total number of haircuts in a year that will yield a total of $120000 therefore,

=120000/11.6

Approximately 10,345 haircuts

3. Operating income if 20,000 haircuts are performed

The contributing margin of 11.6 per haircut makes the price increase by the same amount to help cover the fixed expenses.

Therefore operating income for 20000 haircuts

(11.6 + 12) X 20000 = $ 472000

Less: total expenses ($120,000)

Operating income therefore is $352,000.

4.

New contributing margin per haircut = $ 12 - $(6 + 0.4)

=$ 5.6

Annual breakeven points in number of haircuts:

Total expenses from workers per hour (5X4) = $ 20

Workers expense per week (20X40) = $ 800

Workers expense in a year (800X50) = $40,000

Other expenses

Add: Rent and other expenses (1750 X12) $ 21,000

Total annual expenses

= $ 61,000

Annual breakeven point therefore = $(61,000 / 5.6)

Approximately $ 10,893 haircuts

Reference

Introduction to Break-even point. Retrieved at http://www.accountingcoach.com/online-accounting-course/01Xpg01.html#break-even-point/

The provided case study.