Colin Was a Professional Classical Guitar Player Until His Motorcycle

question 68

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 $800 and the fixed monthly operating costs are as follows:
$$\begin{array} { | l | l | } \hline \text { Rent and electricity and gas } & \$ 1100 \\\hline \text { Wages and benefits to luthier } & 2900 \\\hline \text { Other expenses } & \$ 10 \\\hline\end{array}$$
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.
Colin is planning to increase the selling price to $860.What impact will the increase in selling price have on the contribution margin ratio?

• A) It will go down from 68% to 60%.
• B) It will stay the same.
• C) It will go up 63%.
• D) It will go up 60%.

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Definitions:

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