A barber charges $20 per haircut. With total monthly expenses totaling $5,000 and 200 haircuts, what price per haircut is required to break even after increasing the salary to $4,000 per month?

A barber charges $20 per haircut. With total monthly expenses totaling $5,000 and 200 haircuts, what price per haircut is required to break even after increasing the salary to $4,000 per month?

• A. $30
• B. $20
• C. $15
• D. $25

Answer: (D)

Break-even pricing means your total revenue must cover all monthly costs. With 200 haircuts in a month, you need 5,000 in revenue to break even. The salary rise to 4,000 is included in those costs, with 1,000 remaining for other expenses, totaling 5,000. So the price per haircut should be 5,000 divided by 200, which is 25 dollars. Charging 25 per haircut yields exactly the 5,000 needed to break even. If you charged 20, you’d bring in 4,000 and would be short of costs; charging 30 would bring in 6,000, exceeding costs and producing a profit.

Break-even pricing means your total revenue must cover all monthly costs. With 200 haircuts in a month, you need 5,000 in revenue to break even. The salary rise to 4,000 is included in those costs, with 1,000 remaining for other expenses, totaling 5,000. So the price per haircut should be 5,000 divided by 200, which is 25 dollars. Charging 25 per haircut yields exactly the 5,000 needed to break even. If you charged 20, you’d bring in 4,000 and would be short of costs; charging 30 would bring in 6,000, exceeding costs and producing a profit.