Unformatted text preview: At 10,000 haircuts? Write your answer below. In some
places, you will need to use your intuition to reach an answer.
5,000 Haircuts 10,000 Haircuts Barbers
Analysis. Let’s look at each cost item separately.
Barbers. At the moment, we have 5 barbers (2,000 haircuts ÷ 400), who have a total cost of $11,000. Therefore, the cost per
barber must be $2,200 per month ($11,000 ÷ 5 barbers). A barber can deliver 400 haircuts a month. That means that every time we
increase our haircuts by 400, we must add a barber.
At 5,000 haircuts per month, we will need 12.5 barbers (5,000 ÷ 400), but since we cannot add half a barber, we must have 13
barbers for 5,000 haircuts. You may have decided to “stretch” your 12 barbers, and not hire the 13th barber until total haircuts reach
5,200 (13 x 400). That is a very reasonable approach. If you take the “stretch” approach, your barber cost for 5,000 haircuts will be
$26,400 (12 x $2,200).) That is...
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- Spring '14
- ........., Boston University School of Management, Crimson Press Curriculum Center, Professor of Accounting and Control