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Problem 2-8 Evermore Beauty Salon Solution

Question 1 2 3 4 6
100% Salary + Commission Commission
Breakeven Salary Commission Only Only
Decision Variables
Hourly Rate $18 $18 $ 10 $ - $ -
Commission/Haircut $ 12 $ 25 $16.80

Parameters
Quantity (# Hairstyles) 9,375 15,000 15,000 15,000 15,000
Hairstyle Price $32 $32 $ 32.00 $ 32.00 $ 32.00
Beauticians 7 7 7 7 7
Hours/Year/Beautician 2,000 2,000 2,000 2,000 2,000
Commission/Haircut $ 180,000 $ 375,000 $ 252,000
Fixed Cost $ 48,000 $ 48,000 $ 48,000 $ 48,000 $ 48,000

Financial Results
Revenue $300,000 $480,000 $480,000 $480,000 $480,000
Fixed Cost $48,000 $48,000 $48,000 $48,000 $48,000
Fixed Labor Cost $252,000 $252,000 $140,000 $0 $0
Variable Labor Cost $180,000 $375,000 $252,000
Total Cost $300,000 $300,000 $368,000 $423,000 $300,000
Profit $0 $180,000 $112,000 $57,000 $180,000

Contribution Margin $ 32 $ 32 $ 20 $ 7 $ 15.20


Breakeven (in # Hairstyles) 9,375 9,375 9,400 6,857 3,158
Total Labor Cost $ 252,000 $ 252,000 $ 320,000 $ 375,000 $ 252,000
Total Fixed Cost $300,000 $300,000 $188,000 $48,000 $48,000

Indifference Point (# Hairstyles)


Alt1 -> Alt2 9,333
Alt1 -> Alt3 10,080
Alt2 -> Alt3 10,769
Problem 2-8 Evermore Beauty Salon Solution

Question 1 2 3 4 6

Breakeven 100% Salary Salary + Commission Commission Only Commission Only


Decision Variables
Hourly Rate 18 18 10 0 0
Commission/Haircut 12 25 =C18/C8

Parameters
Quantity (# Hairstyles) 9375 15000 15000 15000 15000
Hairstyle Price 32 32 32 32 32
Beauticians 7 7 7 7 7
Hours/Year/Beautician 2000 2000 2000 2000 2000
Commission/Haircut =D5*D8 =E5*E8 =F5*F8
Fixed Cost 48000 48000 48000 48000 48000

Financial Results
Revenue =B8*B9 =C8*C9 =D8*D9 =E8*E9 =F8*F9
Fixed Cost =B13 =C13 =D13 =E13 =F13
Fixed Labor Cost =B10*B4*B11 =C10*C4*C11 =D10*D4*D11 =E10*E4*E11 =F10*F4*F11
Variable Labor Cost =D12 =E12 =F12
Total Cost =B17+B18+B19 =C17+C18+C19 =D17+D18+D19 =E17+E18+E19 =F17+F18+F19
Profit =B16-B20 =C16-C20 =D16-D20 =E16-E20 =F16-F20

Contribution Margin =B9-B5 =C9-C5 =D9-D5 =E9-E5 =F9-F5


Breakeven (in # Hairstyles) =(B17+B18)/B23 =(C17+C18)/C23 =(D17+D18)/D23 =(E17+E18)/E23 =(F17+F18)/F23
Total Labor Cost =B18+B19 =C18+C19 =D18+D19 =E18+E19 =F18+F19
Total Fixed Cost =B17+B18 =C17+C18 =D17+D18 =E17+E18 =F17+F18

Indifference Point (# Hairstyles)


Alt1 -> Alt2 =(B26-D26)/(B23-D23)
Alt1 -> Alt3 =(C26-E26)/(C23-E23)
Alt2 -> Alt3 =(D26-E26)/(D23-E23)
Influence Diagram
Profit

Revenue T t l Cost
Total C t

Total Variable
Costs Total Fixed
Costs

Variable Labor Fixed Labor


Expense Expense

Commission

Haircut Number Number Hours Hourly Fixed


Price Haircuts Beauticians Worked Rate Costs