Contribution Margin

Our office had received a request from Andre, owner of Andre’s Styling Saloon to perform an evaluation on his business.

Andre has five barbers that work in the establishment and each employee received a salary of $9.90 per hour and works a 40-hour week and a 50-week year, regardless of the number of haircuts. As rent and other fixed expenses he expends $1,750 every month, plus $ 0.40 as the cost of hair shampoo used on all his clients. This saloon is performing haircuts exclusively and each client paid a flat price of $ 12.00.

He wanted for us to evaluate a new compensation method for his employees. Under the new system the barbers will receive a flat salary of $4 per hour, and a commission of $ 6.00 for each haircut. In this case Andre wants to know how much is going to be the new contribution margin per haircut, the annual break-even point in number of haircuts.

On our evaluation, Andre requested to find the following information.

1. Find the contribution margin per haircut.

Contribution