Ajax was a professional classical guitarist until a motorcycle accident left him disabled.After long months of therapy,he hired an experienced luthier and started a small shop to make and sell Spanish guitars.The guitars sell for $800,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | }
\hline \text { Rent and utilities } & \$ 600 \
\hline \text { Wages and benefits to luthier } & 2300 \
\hline \text { Other expenses } & 479 \
\hline
\end{array}$$ Ajax's accountant told him about contribution margin ratios,and Ajax understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
How many guitars does Ajax need to sell each month to break even? (Round your answer up to the nearest whole guitar.)

Question

Ajax was a professional classical guitarist until a motorcycle accident left him disabled.After long months of therapy,he hired an experienced luthier and started a small shop to make and sell Spanish guitars.The guitars sell for $800,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 600 \
\hline \text { Wages and benefits to luthier } & 2300 \
\hline \text { Other expenses } & 479 \
\hline
\end{array}$$ Ajax's accountant told him about contribution margin ratios,and Ajax understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
How many guitars does Ajax need to sell each month to break even? (Round your answer up to the nearest whole guitar.)

Quizplus · Accepted Answer

Contribution Margin = 1 - Fixed Costs/Sales0.60 = 1 - 3379/SalesSales = 3379/0.60 = $5631.67Number of guitars = Sales/Price per guitar = 5631.67/800 = 7.04Rounded up to the nearest whole guitar = 8 guitars

Ajax Was a Professional Classical Guitarist Until a Motorcycle Accident