Martha has asked you to evaluate her business, Martha's Tattoo Salon. Martha has five tattoo artists working for her. (Martha is not one of them.) Each tattoo artist is paid $9.90 per hour and works 40 hours a week and 50 weeks a year, regardless of the number of tattoos. Rent and other fixed expenses are $1,750 per month. Assume that the only service performed is the giving of tattoos, whose unit price is $12.
Given this information:
- Find the contribution margin per tattoo. Assume that the tattoo artists' compensation is a fixed cost.
- Determine the annual breakeven point in number of tattoos.
- What will be the operating income if 20,000 tattoos are performed?
- Assume Martha revises the compensation method. The tattoo artist will receive $4 per hour plus $6 for each tattoo. What will be the new contribution margin per tattoo? What is the annual breakeven point in number of tattoos?