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:

Ocean-Continent Convergence

A type of plate boundary where a continental plate and oceanic plate collide, often resulting in volcanic activity and mountain building.

Fold and Thrust Belt

A series of mountainous folds and thrust faults created by the compression of the earth's crust.

Foreland Basin

A structural basin that forms adjacent to mountain ranges, resulting from the earth's crust flexing downward due to the weight of overlying mountains.

Normal Faults

Faults where the hanging wall moves downward relative to the footwall, typically caused by extensional forces.