Steven Was a Professional Classical Guitar Player Until His Motorcycle

question 67

Multiple Choice

Steven 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 $800 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } \hline \text { Rent and utilities } & \$ 1,250 \\\hline \text { Wages and benefits to luthier } & 2,500 \\\hline \text { Other expenses } & 490 \\\hline\end{array}$$ Steven's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and that anything past that point was pure profit.
Steven wishes to earn $6,000 of operating profit each month.Calculate the number of guitars Steven will have to sell to achieve the target profit.

• A) 19 guitars
• B) 37 guitars
• C) 9 guitars
• D) 20 guitars

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Definitions:

Strike Price

The specified price at which the buyer of an option can buy (for a call option) or sell (for a put option) the underlying asset.

Net Profit

The amount of income that remains after all operating expenses, taxes, and costs have been subtracted from total revenue.

Call Contracts

Financial derivatives that give the holder the right, but not the obligation, to buy an asset at a set price within a specific time period.