Adam was a professional classical guitar player until his motorcycle accident that left him disabled.After long months of therapy,he hired an experienced luthier (maker of stringed instruments)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:

Adam's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and that anything past that point was pure profit.
How many guitars does Adam have to sell each month to break even?
A)6 guitars
B)5 guitars
C)7 guitars
D)8 guitars

Question

Adam was a professional classical guitar player until his motorcycle accident that left him disabled.After long months of therapy,he hired an experienced luthier (maker of stringed instruments)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:

Adam's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and that anything past that point was pure profit.
How many guitars does Adam have to sell each month to break even?
A)6 guitars 
B)5 guitars 
C)7 guitars 
D)8 guitars

Quizplus · Accepted Answer

D)Required sales in units = (Fixed costs + Target profit)/ Contribution margin per unit
Contribution margin per unit = $900 × 0.60 = $540
Total fixed costs = $800 + $3,000 + $500 = $4,300
Required sales in units = (4,300 + 0)/ $540 = 8 guitars

Adam Was a Professional Classical Guitar Player Until His Motorcycle