Colin Was a Professional Classical Guitarist Until a Motorcycle Accident

question 27

Multiple Choice

Colin was a professional classical guitarist 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 $900,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } \hline \text { Rent and utilities } & \$ 700 \\\hline \text { Wages and benefits to luthier } & 2,000 \\\hline \text { Other expenses } & 475 \\\hline\end{array}$$ Colin's accountant told him about contribution margin ratios,and Colin understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
What is the amount of revenue Colin should earn each month to break even? (Round your answer to the nearest dollar. )

• A)$7,938
• B)$5,292
• C)$4,500
• D)$4,125

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Definitions:

Per-Unit Tax

A tax that is levied on a product based on a fixed amount per unit sold, not based on the value of the product.

Quantity Tax

A tax that is levied on a specific amount or quantity of a good or service, rather than on its value.

Lost Revenue

Revenue that was expected but not received, often due to unforeseen circumstances or decisions leading to missed opportunities.

Long-Run Cost Curve

A graphical representation showing the minimum cost at which any given level of output can be produced in the long run, where all inputs are variable.