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Colin Was a Professional Classical Guitar Player Until His Motorcycle

question 124

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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:  Rent and utilities $800 Wages and benefits to luthier 2,500 Other expenses 480\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 $820. What impact will the increase in selling price have on the breakeven point in units?

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Definitions:

Crime

An act prohibited by the state; a public wrong.

Exclusive Dealing

A contractual agreement where one party agrees to buy goods exclusively from another, often restricting competition.

Distributor

A person or company that is responsible for supplying goods to retailers or directly to customers.

Manufacturer

A person or company that makes goods for sale, especially on a large scale.

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