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

Pheonix's accountant told him about contribution margin ratios,and Pheonix understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
Pheonix is planning to increase the sales price to $750.What impact will the increase in sales price have on the contribution margin ratio?

Question

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

Pheonix's accountant told him about contribution margin ratios,and Pheonix understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
Pheonix is planning to increase the sales price to $750.What impact will the increase in sales price have on the contribution margin ratio?

Quizplus · Accepted Answer

C)Contribution margin per unit = $700 × 0.60 = $420
 11ea86ed_2ba5_3663_8b27_cd82d5ad71d5_TB3056_00 Contribution margin ratio = ($470 / $750)× 100 = 0.6267

Pheonix Was a Professional Classical Guitar Player Until a Motorcycle