Martin Was a Professional Classical Guitar Player Until a Motorcycle

question 248

Multiple Choice

Martin 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 $900,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } \hline \text { Rent and utilities } & \$ 800 \\\hline \text { Wages and benefits to luthier } & 2000 \\\hline \text { Other expenses } & 474 \\\hline\end{array}$$ Martin's accountant told him about contribution margin ratios,and Martin understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and anything above that point was profit.
Martin wishes to earn $4000 of operating profit each month.Calculate the number of guitars Martin will need to sell to achieve the target profit.(Round your answer up to the nearest whole guitar.)

• A) 3 guitars
• B) 12 guitars
• C) 4 guitars
• D) 13 guitars

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Definitions:

Cost-Volume-Profit Analysis

An accounting methodology used to estimate the impact of varying levels of costs and volume on operational profit.

Manufacturing Firm

A business that produces goods in large quantities using raw materials, components or parts, and machinery, often within a factory setting.

Direct Variable Costs

These costs vary directly with the level of production output, such as materials and labor, and are essential for calculating a product's profitability.