Colin Was a Professional Classical Guitar Player Until His Motorcycle

question 46

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 $1300 and the fixed monthly operating costs are as follows:
$$\begin{array} { | l | l | } \hline \text { Rent, electricity and gas } & \$ 1000 \\\hline \text { Wages and benefits to luthier } & 2900 \\\hline \text { Other expenses } & 540 \\\hline\end{array}$$
Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.50 went to cover his fixed costs and that anything past that point was pure profit.
How many guitars does Colin have to sell each month to break even?

• A) 6 guitars
• B) 7 guitars
• C) 5 guitars
• D) 4 guitars

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