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:

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:

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

D)
Required sales in units = (Fixed costs + Target profit)/ Contribution margin per unit
Contribution margin per unit = $800 × 0.60 = $480
Total fixed costs = $600 + $2300 + $479 = $3379
Required sales in units = ($3379 + $0)/ $480 = 8 guitars

Ajax Was a Professional Classical Guitarist Until a Motorcycle Accident