Floyd's Barbershop has fixed costs of $3,000 per month. Floyd regularly performs 400 haircuts a month and he does not anticipate this to change. Each haircut has a variable cost of $4.00. If Floyd would like to earn a target profit of $2,000, what does he need to charge for each haircut?

Question

Quizplus · Accepted Answer

First, we need to calculate Floyd's total cost:
Total Cost = Fixed Cost + Variable Cost
Total Cost = $3,000 + ($4.00 x 400)
Total Cost = $4,400

To earn a target profit of $2,000, Floyd's total revenue must be:
Total Revenue = Total Cost + Target Profit
Total Revenue = $4,400 + $2,000
Total Revenue = $6,400

To find the price per haircut, we divide the total revenue by the number of haircuts:
Price per Haircut = Total Revenue / Number of Haircuts
Price per Haircut = $6,400 / 400
Price per Haircut = $16.00

Therefore, Floyd needs to charge $16.00 per haircut to earn a target profit of $2,000. Answer B is the closest choice at $16.50.

Floyd's Barbershop Has Fixed Costs of $3,000 Per Month