Vin Diesel owns the Fredonia Barber Shop. He employs 6 barbers and pays each a base rate of $1,600 per month. One of the barbers serves as the manager and receives an extra $520 per month. In addition to the base rate, each barber also receives a commission of $5.99 per haircut. Other costs are as follows.

Advertising $200 per month

Rent $1,100 per month

Barber supplies $0.30 per haircut

Utilities $175 per month plus $0.20 per haircut

Magazines $25 per month

Vin currently charges $10 per haircut.

Determine the variable costs per haircut and the total monthly fixed costs.

Variable cost $6.49 per haircut

Fixed cost $11,620 per month

Explanation:

Variable cost are those cost which vary with the level of output / sale e. g commission paid on per haircut basis.

Fixed cost are those cost which does not vary with the level of output / sales. It remains fix whatever the level of activity e. g payment of salary / wages per month.

Variable costs

Commission = 5.99 per haircut

Barber supplies $0.30 per haircut

Utilities $0.20 per haircut

Total variable cost = $5.99 + $0.30 + $0.20 = $6.49 per haircut

Fixed Costs

Barbers pay = 6 x $1600 = $9,600 per month

Manager Salary = $520 per month

Advertising $200 per month

Rent $1,100 per month

Utilities $175 per month

Magazines $25 per month

Total fixed cost = $9,600 + $520 + $200 + $1,100 + $175 + $25 = $11,620 per month

Vin currently charges $10 per haircut. is the price of haircut.