Need to find Break-even$ and units, margin of safety $ and ratio?

3600 haircuts average price $33 fixed costs $18,018 and variable costs 79% of sales. How do I figure these?
jetawise
Asked Jul 03, 2011
Fixed costs are the cost of running the business if sales are zero. Rent, telephone salaries etc are fixed costs. Variable costs are expenditures only incurred when the product is sold or the service rendered. Freight, sales conmissions, contract labor would be variable costs.

Sales = NumberofUnits * Price
VariableCost = Sales * VariablePercentage
GrossProfit = Sales - VariableCost
TotalCost = VariablecCost + FixedCost
Breakeven =TotalCost
NetProfit = Sales-TotalCost
NetProfitPercentage(Ratio?) = NetProfit / Sales

The above are the essential numbers on an operating statement. They will be fine tuned when they get to the accountant for producing a P&L statement and Balance Sheet.

I'm not sure what you're looking for in "margin of safety." The businesses I ran tried to maintain FixedCost * 6 cash on hand as a safety net. Once cash fell below that, I started cutting cost but that's a subjective decision and depends on the type business and the risk appetite of the management.

Rob
Answered Jul 03, 2011
Edited Jul 03, 2011

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