QUESTION 2 (35 MARKS)
Two friends, Mulalo and Tenda, recently got into a debate regarding the amount they pay for
a haircut. Mulalo insisted that he paid R30 for a haircut at Budget Barbers and that this is
reasonable according to him. Tenda thought this was rather low amount and suggested that
Budget Barbers cannot not be reputable since he paid R100 at the unisex salon (Golden
Unisex) he went to for a haircut. Since both friends are interested in finding out why there is
such a large difference they decided to collect cost information for each barber/hair salon for
comparison.
Budget Barbers:
The barbershop is run by 2 barbers who divide all profits equally. After an interview with the
owners Mulalo discovered the following information based on an average of 760 haircuts per
month:
• The rent expense is fixed at R5 000 per month.
• Other paid expenses, excluding water and electricity, amount to R2 000 a month. The
owners do not keep an expense record and were unable to provide a detailed analysis
of the expense. The monthly cost can be divided into two categories:
o Cleaning cost (detergents and cleaning cloths) of R200. The barbershop is
swept after every haircut by the barber. The barbershop is however cleaned
completely at the end of every day, irrespective of the number of haircuts that
occurred during the day.
o The rest of the other paid expenses are for blades, gel and powder used during
the haircuts.
• Water and electricity for the barbershop amounts to R1 500 per month. The water and
electricity usage generally varies with each haircut with the exception of 20% of the
cost which is attributable to keeping the lights on throughout the day.
• The barbershop owns 2 Barber chairs (cost price of R5 000 each) with an expected
useful life of 7 years. The shavers and other equipment (scissors, comb, towel, cape,
razors, broom etc.) cost R 9 000 and have an expected useful life of 5 years. The
furniture in the barbershop (except the 2 Barber chairs) has been there since inception
and is fully depreciated.
Golden Unisex:
The hair salon is a franchise run by one owner who employs 7 hair stylists and a receptionist.
The owner is not actively involved in the salon. After a telephone interview with the owner,
Michael determined the following based on an average number of haircuts of 3 000 in a month:
• The rent expense is fixed at R20 000 per month.
• The 7 hair stylists and the receptionist are all paid a fixed monthly salary of R13 000
each.
• Franchise fees are required to be paid by Golden Unisex. The fee comprises of a fixed
base fee per month as well as a fee for each haircut. When 2 000 haircuts are
performed the franchise fee amounts to R35 000. When 200 more haircuts are
performed the fee amounts to R36 000.
• Other paid expenses amount to R4 per haircut. This comprises of the costs of blades,
gel, powder, face cream, shampoo and cleaning supplies (e.g. detergent) which are
used for each haircut. The tools and the area used by the barber are sanitised after
every haircut.
• Tenda determined from his friend Faith that she paid approximately R800 for her
haircut at the Golden Unisex. The costs relating to a haircut for a woman is the same
as for a man with the exception of the following:
Women get their hair massaged with a special conditioner for extra gloss during a
haircut. This costs approximately R125 per haircut.
Women also get their hair treated at each haircut to prevent hair loss. This amounts
to R40 per haircut.
The cost of additional styling products used in the woman’s haircut amounts to R10
per haircut.
Historically, women represented two-thirds of all haircuts and this trend is
expected to continue.
• Water and electricity for the salon amounts to R4 000 per month. The water and
electricity usage generally varies with each haircut with the exception of 25% of the
cost which is attributable to keeping the lights on throughout the day.
• The salon owns 7 Barber chairs (cost price of R5 000 each) and furniture (cost price
R80 000) with an expected useful life of 7 years. The shavers and other equipment
(scissors, comb, towel, cape, razors, broom, straightener for woman etc.) costing R110
000 have an expected useful life of 5 years.
REQUIRED:
a) Calculate the number of haircuts that Budget Barbers would have to perform in a month
in order to breakeven.
(7)
b) Calculate the number of haircuts that Golden Unisex would have to perform in a month,
clearly distinguishing between the number of men’s and woman’s haircuts which would
need to be performed to breakeven.
(15)
c) Discuss the possible reasons as to why the hair cut prices of the two hair salons differ.
(6)
d) Describe and distinguish between the three different approaches to presenting
cost-volume-profit relationships in graphical format. (7)
