Slate was a professional classical guitar player until a motorcycle accident at 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 each,and the fixed monthly operating costs are as follows:

Slate's accountant told him about contribution margin ratios,and Slate understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
Slate is planning to increase the sales price to $820.What impact will the increase in sales price have on the breakeven point in units? (Round your answer up to the nearest whole guitar. )

Question

Slate was a professional classical guitar player until a motorcycle accident at 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 each,and the fixed monthly operating costs are as follows:

Slate's accountant told him about contribution margin ratios,and Slate understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
Slate is planning to increase the sales price to $820.What impact will the increase in sales price have on the breakeven point in units? (Round your answer up to the nearest whole guitar. )

Quizplus · Accepted Answer

D)
Contribution margin per unit = $700 × 0.60 = $420
Total fixed costs = $810 + $2520 + $480 = $3810
Required sales in units = (Fixed costs + Target profit)/ Contribution margin per unit
Required sales in units = ($3810 + 0)/ $420 = 10 units
Revised contribution margin = $420 + ($820 - $700)= $420 + $120 = $540
Required sales in units (Revised)= ($3810 + 0)/ $540 = 8 units

Slate Was a Professional Classical Guitar Player Until a Motorcycle