Chapter 22, Problem 2PSA

(a)

To determine

Fixed costs: The fixed costs refer to those costs, which do remain constant with respect to the output. The fixed costs do not vary with the output. The expenses like the depreciation, taxes, and interest expenses come under the fixed costs.

Variable costs: The variable costs refer to the costs which vary with respect to the output. The variable costs include the commission, the freight charges, and the direct materials.

Break-Even Point: The break-even point is a point where the total cost incurred is same as the total revenue earned. At the break-even point, the profit will be zero. The break-even point is the point in the business where there is no loss and no gain.

CVP Graph: The cost-volume-profit graph represents the cost-volume-profit analysis in a graphical form. The graph represents the relationship between the sales in units and sales in dollars using the fixed costs, variable costs and the total costs.

To determine: The variable costs per haircut and total monthly fixed costs.

(b)

To determine

The break-even point in units and dollars.

(c)

To determine

To prepare: The cost-volume-profit graph.

(d)

To determine

The amount of net income.