Colin Was a Professional Classical Guitar Player Until His Motorcycle

question 104

Multiple Choice

Colin 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 $700 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } \hline \text { Rent and utilities } & \$ 800 \\\hline \text { Wages and benefits to luthier } & 2,500 \\\hline \text { Other expenses } & 480 \\\hline\end{array}$$ Colin'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.
Colin is planning to increase the selling price to $750. What impact will the increase in selling price have on the contribution margin ratio?

• A) It will stay the same.
• B) It will go up 70% to 75%.
• C) It will go up from 60% to approximately 63%.
• D) It will go down from 70% to approximately 67%.

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Definitions:

Concrete Operational Stage

A stage in Piaget's theory of cognitive development where children (approximately 7 to 12 years old) can think logically about concrete events.

Tangible Objects

Items that can be perceived through the sense of touch, having physical presence and form.

Actual Events

Factual occurrences or happenings in reality, as opposed to perceived or interpreted events.

Perspective-taking

The social cognitive skill of understanding another person's thoughts, feelings, and point of view.