Unformatted text preview: the nature of a step function cost. By similar reasoning, we can conclude that for 10,000 haircuts, we
will need 25 barbers; this time there are no fractions of a barber. Thus, at 5,000 haircuts (with 13 barbers), our barber cost will be
$28,600 (13 x $2,200), and at 10,000 haircuts (25 barbers), it will be $55,000 (25 x $2,200).
Hair Supplies. Using our baseline information, we can see that hair supplies must increase at a rate of $2.00 per haircut. That
is, since we incurred $4,000 in costs with 2,000 haircuts, and since the cost is variable, the variable cost rate must be $4,000 ÷ 2,000
haircuts. This means that at 5,000 haircuts, the cost will be $10,000 (5,000 x $2.00), and that at 10,000 haircuts, the cost will be
$20,000 (10,000 x $2.00).
Other Supplies. These were given as $3,000 and $4,000 respectively.
Utility Costs. Since utility costs are semi-variable, they have both a fixed and a variable component. The fixed component is
$600. Since utility costs totaled $1,000 at 2,000 haircuts, the variable component must by $400 ($1,000 - $600). Therefore, these
costs must increase at a rate of $.2...
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- Spring '14
- ........., Boston University School of Management, Crimson Press Curriculum Center, Professor of Accounting and Control