Zeke 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 $800,and the fixed monthly operating costs are as follows:

Zeke's accountant told him about contribution margin ratios,and Zeke understood clearly that for every dollar of sales,$0.75 went to cover his fixed costs,and anything above that point was profit.
Zeke wishes to earn $5100 of operating profit each month.Calculate the amount of sales revenue required to achieve the target profit.(Round your answer to the nearest dollar. )

Question

Zeke 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 $800,and the fixed monthly operating costs are as follows:

Zeke's accountant told him about contribution margin ratios,and Zeke understood clearly that for every dollar of sales,$0.75 went to cover his fixed costs,and anything above that point was profit.
Zeke wishes to earn $5100 of operating profit each month.Calculate the amount of sales revenue required to achieve the target profit.(Round your answer to the nearest dollar. )

Quizplus · Accepted Answer

C)Required sales in dollars = (Fixed costs + Target profit)/ Contribution margin ratio
Contribution margin ratio = 75%
Total fixed costs = $700 + $2300 + $479 = $3479
Target profit = $5100
Required sales in dollars = ($3479 + $5100)/ 75% = $11,439

Zeke Was a Professional Classical Guitar Player Until a Motorcycle