Martin 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 $900,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | }
\hline \text { Rent and utilities } & \$ 800 \
\hline \text { Wages and benefits to luthier } & 2000 \
\hline \text { Other expenses } & 474 \
\hline
\end{array}$$ Martin's accountant told him about contribution margin ratios,and Martin understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and anything above that point was profit.
Martin wishes to earn $4000 of operating profit each month.Calculate the number of guitars Martin will need to sell to achieve the target profit.(Round your answer up to the nearest whole guitar.)
A) 3 guitars
B) 12 guitars
C) 4 guitars
D) 13 guitars

Question

Martin 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 $900,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 800 \
\hline \text { Wages and benefits to luthier } & 2000 \
\hline \text { Other expenses } & 474 \
\hline
\end{array}$$ Martin's accountant told him about contribution margin ratios,and Martin understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and anything above that point was profit.
Martin wishes to earn $4000 of operating profit each month.Calculate the number of guitars Martin will need to sell to achieve the target profit.(Round your answer up to the nearest whole guitar.)
A) 3 guitars
B) 12 guitars
C) 4 guitars
D) 13 guitars

Quizplus · Accepted Answer

To achieve a target profit, Martin needs to cover his fixed costs and the desired profit. The fixed costs are $800 + $2000 + $474 = $3274. With a target profit of $4000, the total amount needed is $3274 (fixed costs) + $4000 (profit) = $7274. Since $0.65 of every dollar goes to cover fixed costs, $0.35 contributes to profit. The price of one guitar is $900, so the contribution per guitar is $900 * 0.35 = $315. To find the number of guitars needed to reach the target, divide the total needed by the contribution per guitar: $7274 / $315 ≈ 23.1. Since Martin can't sell a fraction of a guitar, he needs to sell 24 guitars to meet his target.

Martin Was a Professional Classical Guitar Player Until a Motorcycle