Leonardo 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 $700,and the fixed monthly operating costs are as follows:

Leonardo's accountant told him about contribution margin ratios,and Leonardo understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
What is the amount of revenue Leonardo should earn each month to break even? (Round your answer to the nearest dollar. )

Question

Leonardo 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 $700,and the fixed monthly operating costs are as follows:

Leonardo's accountant told him about contribution margin ratios,and Leonardo understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
What is the amount of revenue Leonardo should earn each month to break even? (Round your answer to the nearest dollar. )

Quizplus · Accepted Answer

B)
Required sales in dollars = (Fixed costs + Target profit)/ Contribution margin ratio
Contribution margin ratio = 60%
Total fixed costs = $800 + $2100 + $472 = $3372
Required sales in dollars = ($3372 + 0)/ 60% = $5620

Leonardo Was a Professional Classical Guitarist Until a Motorcycle Accident