Question

Jenny’s Cutting Station is a new concept in haircuts - low cost and very quick. Located in a local mall, Jenny’s offers 15 minute haircuts for harried shoppers who do not have time for lengthy appointments. To ensure that the clients are in and out quickly, she schedules her 5 employees based on expected client traffic. Each of the employees is paid $1,200 per month plus any client tips they receive. Jenny pays herself $5,000 per month.

Jenny pays rent and overhead costs of $2,000 per month. Because of the quick nature of the service, Jenny doesn’t have time to clean combs in between clients, so she uses a new comb for each customer, at a cost of $.85 each. She also provides shampoo and conditioner for each client at a cost of $.95 per client. The price for a haircut is $12.

Prepare a contribution format income statement in good form for September assuming the shop provides 1,000 haircuts during the month.

Answer 1

The contribution margin format income statement will be as follows:

Sales revenue 1,000*12		12,000
Less: variable costs
Comb 0.85*1,000	850
Shampoo and conditioner 0.95*1,000	950
Total variable costs		1,800
Contribution margin		10,200
Less: fixed costs
Employee salary 1,200*5	6,000
Jenny's salary	5,000
Rent and overhead	2,000
Total fixed costs		13,000
Net operating income		-$2,800