Leonardo Was a Professional Classical Guitarist Until a Motorcycle Accident

question 36

Multiple Choice

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: $$\begin{array} { | l | r | } \hline \text { Rent and utilities } & \$ 800 \\\hline \text { Wages and benefits to luthier } & 2100 \\\hline \text { Other expenses } & 472 \\\hline\end{array}$$ 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.)

• A) $8430
• B) $5620
• C) $4833
• D) $4287

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Definitions:

Donation Revenue

Income received from giving without the expectation of receiving something in return, typically for non-profit organizations.

Restricted Fund Method

An accounting strategy used for tracking and reporting separately on resources that are restricted by donors for specific purposes.

Capitalize

To record a cost/expense on the balance sheet for the purposes of delaying full recognition of the expense over time through depreciation or amortization.

Expense Capital Assets

The process of recording the cost of a capital asset as an expense over its useful life, often through depreciation or amortization.