Colin Was a Professional Classical Guitar Player Until His Motorcycle

question 67

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 $720 and the fixed monthly operating costs are as follows:
$$\begin{array} { | l | l | } \hline \text { Rent and electricity and gas } & \$ 1400 \\\hline \text { Wages and benefits to luthier } & 2500 \\\hline \text { Other expenses } & 300 \\\hline\end{array}$$
Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and that anything past that point was pure profit.
What is the amount of revenue Colin should earn each month to break even?

• A) $7834
• B) $5500
• C) $6500
• D) $11,750

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Definitions:

Inventory Decrease

A reduction in the quantity of goods held in stock by a company.

Investing Activities

Transactions involving the purchase and sale of long-term assets or investments, part of a company’s cash flow.

Cash Payments

Financial transactions involving the outflow of cash to settle obligations or purchase goods and services.

Debt Principal

The original amount of money borrowed or the remaining balance of a loan, exclusive of interest.