AAA Beauty services 200 clients at an average price of 100....

AAA Beauty services 200 clients at an average price of $100. During the month, fixed costs were $60,000 and variable costs were 60% of sales. a. Contribution margin per unit = Total Contribution margin = Contribution margin ratio = b. Break-Even in dollars = c. To earn a target income of $25,000, Required Sales in dollars =

Transcript

00:01 In this problem, they're talking about a salon that does 3 ,110 haircuts, shampoos, and other services at an average of $30.

00:09 And they tell us the fixed cost and the variable cost.

00:12 So the first thing we want to compute before we do anything is calculate the amount of sales that they are making.

00:20 So sales are going to be equal to 3110, which are the services they provide at an average of 30.

00:27 And that is equal to $93 ,300.

00:36 So that's the amount of sales they're having.

00:39 So the first thing they ask is determine the margin, the contribution margin in dollars per unit and as a ratio.

00:48 So the contribution margin, contribution margin is the amount of sales, which is sales minus the variable costs.

01:06 In this case our sales are 93 300 minus the variable cost which are 60 % of that so 0 .60 multiplied by 93 300 so with that we get the value or we could have multiplied 93 300 times 40 % if we get a value of 37 ,330 dollars so if we want that contribution margin per unit per unit that will be we divided the contribution margin per unit is going to be equal to that amount that we found divided by the units of units sold which is 33 ,110 and we get a value of $12 dollars per unit and they ask us to find the contribution margin as a ratio well the percent contribution margin is of course if variable costs are 60 % of sales, this is going to be 40 % of sales.

02:22 So we don't need to make any special computation for that.

02:26 Then in question b, they want to figure out the break -even point, the break -even point of this situation.

02:39 So the break -even is easy to find.

02:42 Break -even.

02:46 We need to find how many units we have to sell to be able to get zero profit.

02:53 So in this case, because our contribution margin is 40%, we're going to multiply 40 % times the amount of units we're going to sell...

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