Hisham was a professional classical guitar player 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 $900,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | }
\hline \text { Rent and utilities } & \$ 800 \
\hline \text { Wages and benefits to luthier } & 2,000 \
\hline \text { Other expenses } & 474 \
\hline
\end{array}$$ Hisham's accountant told him about contribution margin ratios,and Hisham understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and anything above that point was profit.
Hisham wishes to earn $4,000 of operating profit each month.Calculate the number of guitars Hisham will need to sell to achieve the target profit.(Round your answer up to the nearest whole guitar. )

Question

Hisham was a professional classical guitar player 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 $900,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 800 \
\hline \text { Wages and benefits to luthier } & 2,000 \
\hline \text { Other expenses } & 474 \
\hline
\end{array}$$ Hisham's accountant told him about contribution margin ratios,and Hisham understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and anything above that point was profit.
Hisham wishes to earn $4,000 of operating profit each month.Calculate the number of guitars Hisham will need to sell to achieve the target profit.(Round your answer up to the nearest whole guitar. )

Quizplus · Accepted Answer

To find the number of guitars needed to achieve the target profit, calculate the total fixed costs and desired profit, then divide by the contribution margin per guitar. Fixed costs are $3,274 ($800 + $2,000 + $474). Desired profit is $4,000. Total needed is $7,274. Contribution margin per guitar is $585 ($900 * 0.65). $7,274 / $585 ≈ 12.43, so Hisham needs to sell 13 guitars.

Hisham Was a Professional Classical Guitar Player Until a Motorcycle