Managerial Accounting Problem - Essay Example

Total annual fixed cost = $99,000 + $21,000 = $120,000$120,000/$11.60=10,345The break-even point equals to 10,345 haircuts per year. 3. Operating income if 20,000 haircuts are performed can be calculated using the following formula (Hilton, 2005, p.307):(Fixed expenses + Operating income ) / Unit contribution margin = Number of sales units After rearrangement: Operating income = Number of sales units * Unit contribution margin - Fixed expensesOperating income = 20,000*$11.

60 - $120,000 = 112,000 So if 20,000 haircuts are performed, operating income equals to $112,000.4. With the new compensation plan that Andre considers, the fixed and variable costs of Andre's Hair styling will change. The total unit variable cost will comprise shampoo per client ($0.40 as before) and a variable portion of barbers' remuneration ($6 per haircut). The total unit variable cost equals $6.40. Then, the new contribution margin per haircut equals to $5.60 ($12-$6.40). The total annual fixed cost comprised a fixed portion of barbers' remuneration and rent and other fixed expenses.

New fixed annual barbers' remuneration = $4*5*40*50 = $40,000Annual rent and other fixed expenses = $21,000Total annual fixed cost = $40,000 + $21,000 = $61,000$61,000/$5.60 = 10,893So with new remuneration policy in place, the break-even point equals to 10,893 haircuts per year (which is higher than under the previous remuneration plan). ReferencesHilton R.W. (2005). Managerial accounting. New York: McGrew-Hill/Irwin.