Contribution Margin

 Essay regarding Contribution Perimeter

Our office experienced received a request by Andre, owner of Andre's Styling Estaminet to perform an evaluation on his organization. Andre has five barbers that work in the establishment and employee received a salary of $9. 80 per hour and works a 40-hour week and a 50-week yr, regardless of the number of haircuts. While rent and other fixed expenses he expends $1, 750 every month, as well as $ zero. 40 since the cost of shampoo or conditioner used on every his clientele. This cabaret is executing haircuts entirely and each client paid a set price of $ doze. 00. This individual wanted for us to evaluate a fresh compensation means for his personnel. Under the fresh system the barbers will receive a flat wage of $4 per hour, and a commission rate of $ 6. 00 for each hair cut. In this case Andre wants to understand how much is going to be the new contribution margin every haircut, the annual break-even point in number of haircuts. About our evaluation, Andre wanted to find the subsequent information.

1 . Find the contribution margin per hair cut.

Contribution Margins Classification

" Contribution margin (or margins) identifies the amount of revenue per item that is available to " contribute" towards the set costs and the profit from the company. Seeing that, for cameras, the variable costs are generally very small, or perhaps zero, a lot of the revenue attained from the sale for a product form the contribution margin. Assuming the contribution margin (unit selling price - device variable cost) > 0, then the method worth marketing, since the fixed costs are sunk. This kind of also takes on the product will not cannibalize product sales from one more product within the supplement line, if so , the opportunity costs need to be considered" (Learnthat. com (2006)). Contribution Margin= Device Price В– Unit Changing Cost

2 . Determine the annual break-even point, in number of haircuts. Break Even Analysis Definition

" Break Even Research refers to the calculation to determine how much item a company must sell in order to break even on that merchandise. It is an powerful analysis to measure the impact of different promoting decisions. It can focus on the merchandise, or incremental changes to the item to determine the potential outcomes of marketing tactics. Learnthat. com (2006))

1 . Locate the contribution margin every haircut. We are going to assume that the barbers' compensation is a fixed cost. To calculate the contribution margin we need to take the unit variable cost through the sale price per device. In our case the cost per each hair cut is bucks 12. 00 and the adjustable price money 0. 45 that presents the cost of shampoo or conditioner used for each customer.

Device Contribution Perimeter: $ 11. 60

Unit sale value: $ doze. 00

Less variable cost: $ zero. 40

Unit Contribution Perimeter = dollar 11. 70

2 . Determine the annual break-even point, in number of haircuts. Support the answer with an appropriate description. To be able to determinate the Twelve-monthly Break Even Level we have to espective, definite the set cost 1st and separate the sum by the device contribution margin obtained simply by subtracting the variable price from the product sale selling price.

Barber's Salaries:

Income per barber per week: bucks 396. 00

Price per hour = dollar 9. 90, hours a week = 45

Weekly wage per herrefris?r: 9. 85 * forty = 396. 00 or $ 396. 00

Salary per barber by 12 months: $ 19, 800

Every week salary per barber sama dengan $ 396, number of several weeks per year = 50 Every year salary every barber: 396. 00 5. 50 = 19, 800 or $ 19, 800

Andre's barbers salaries each year: $ 99, 000

one particular barber sama dengan $ nineteen, 800, amount of barbers= your five

Total incomes: 19, 800 * 5= 99, 000 or bucks 99, 500

Overhead Expense:

Rent: money 1, 750 per month, Every year cost: money 21, 1000

1750* doze = 21, 000 or perhaps $ twenty-one, 000

Fixed Cost: money 120, 1000

Salaries + Overhead Price

99, 1000 + 21 years old, 000 sama dengan 120, 000 or dollar 120, 000

To be able to espective, definite the Annual Break Even Stage we have to determinate the set cost initially and split the sum by the device contribution margin obtained by subtracting the variable price from the device sale price. Break- Even Point: 15, 345

Fixed Cost / Unit Contribution...

References: Learnthat. com (2006) Contribution Perimeter Retrieved May 16, 2006 from

http://www.learnthat.com/define/view.asp?id=289

Learnthat. com (2006) Make your money back Analysis Retrieved May 18, 2006 coming from

http://www.learnthat.com/define/view.asp?id=280

Investopedia (2005) Net Operating Profits - NOI. (n. g. ) Recovered May 18 2006 coming from

http://financial-dictionary.thefreedictionary.com/Net+Operating+Income+-+NOI

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