Pheonix Was a Professional Classical Guitar Player Until a Motorcycle

question 63

Multiple Choice

Pheonix 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 $700,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } \hline \text { Rent and utilities } & \$ 810 \\\hline \text { Wages and benefits to luthier } & 2500 \\\hline \text { Other expenses } & 480 \\\hline\end{array}$$ Pheonix's accountant told him about contribution margin ratios,and Pheonix understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
Pheonix is planning to increase the sales price to $750.What impact will the increase in sales price have on the contribution margin ratio?

• A)It will stay the same.
• B)It will increase to 53.33%.
• C)It will increase to approximately 62.67%.
• D)It will decrease to approximately 49.33%.

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Definitions:

Ten-Year Treasury Note

A government debt security issued by the U.S. Treasury with a ten-year maturity, which pays interest to the holder every six months.

Cash Equivalent

Short-term, highly liquid investments that are easily convertible to known amounts of cash and close to their maturity.

Certificate of Deposit

A time deposit at a bank or financial institution that offers a fixed interest rate over a specified period.

Capital Acquisitions Ratio

A measure of a company’s ability to finance its investment in fixed assets through net income, indicating how much of the company’s capital is being acquired through profits.