Pheonix Was a Professional Classical Guitar Player Until a Motorcycle

question 151

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:

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:

Credit Sales

Sales transactions where the customer is allowed to purchase goods or services on account, paying the seller at a later date.

Cash Sales

Transactions where goods or services are paid for and received at the time of sale, using cash or equivalent forms of payment.

Accounts Receivable Turnover Ratio

A financial metric that measures how efficiently a company collects cash from its credit sales by dividing net credit sales by the average accounts receivable during a period.

Customer Payment Patterns

The tendencies or behaviors observed in how customers make their payments, which can vary in timing and method.