Colin Was a Professional Classical Guitar Player Until His Motorcycle

question 159

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: $\begin{array}{|l|r|}\hline\text { Rent and utilities } & \$ 1,000 \\\hline \text { Wages and benefits to luthier } & 2,500 \\\hline \text { Other expenses } & 481 \\\hline\end{array}$ 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.
What is the amount of revenue Colin should earn each month to break even?

• A) $9,952
• B) $6,635
• C) $4,968
• D) $5,833

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