Abstract
Andrew’s Hair Styling is a hair salon offering only haircuts. This paper evaluates the company’s contribution margin, break-even point, and operating income under two distinct compensation structures. In the first case, barbers are paid only a fixed hourly wage. In the other case, barbers are paid a lower fixed hourly wage together with an incentive payment for each haircut. The business owner is interested in the effects of the revised compensation method on the aforementioned performance indicators.
The calculations indicate that, although the revised compensation structure will reduce annual fixed costs by 49%, it will also reduce net operating ...