Colin Was a Professional Classical Guitar Player Until His Motorcycle

question 107

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.
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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?

• A) It will stay the same.
• B) It will go down from 11 to 9 units.
• C) It will go up from 9 to 12 units.
• D) It will go down from 9 to 7 units.

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Definitions:

Herbivores

Animals that eat plants as their primary source of food, using special adaptations to digest a largely vegetarian diet.

Cellulose

An organic compound with the formula (C6H10O5)n, a polysaccharide consisting of a linear chain of several hundred to many thousands of β(1→4) linked D-glucose units, a primary structural component of plant cell walls.

Digestive Tracts

The series of hollow organs joined in a long, twisting tube from the mouth to the anus, where food is broken down and nutrients are absorbed.

Pulp Cavity

The central part of a tooth containing the nerve and blood vessels, vital for the tooth's nutrition and sensitivity.