Martin 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:

Martin's accountant told him about contribution margin ratios,and Martin understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and anything above that point was profit.
Martin wishes to earn $4000 of operating profit each month.Calculate the number of guitars Martin will need to sell to achieve the target profit.(Round your answer up to the nearest whole guitar. )

Question

Martin 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:

Martin's accountant told him about contribution margin ratios,and Martin understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and anything above that point was profit.
Martin wishes to earn $4000 of operating profit each month.Calculate the number of guitars Martin will need to sell to achieve the target profit.(Round your answer up to the nearest whole guitar. )

Quizplus · Accepted Answer

D)
Required sales in units = (Fixed costs + Target profit)/ Contribution margin per unit
Contribution margin per unit = $900 × 0.65 = $585
Total fixed costs = $800 + $2000 + $474 = $3274
Target profit = $4000
Required sales in units = ($3274 + $4000)/ $585 = 13 guitars

Martin Was a Professional Classical Guitar Player Until a Motorcycle