Colin Was a Professional Classical Guitar Player Until His Motorcycle

question 45

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 $740 and the fixed monthly operating costs are as follows:
$$\begin{array} { | l | l | } \hline \text { Rent, electricity and gas } & \$ 850 \\\hline \text { Wages and benefits to luthier } & 3000 \\\hline \text { Other expenses } & \$ 20 \\\hline\end{array}$$
Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.70 went to cover his fixed costs,and that anything past that point was pure profit.
Colin is planning to increase the selling price to $850.What impact will the increase in selling price have on the breakeven point in units?

• A) It will go down from 11 to 9 units.
• B) It will stay the same.
• C) It will go up from 9 to 12 units.
• D) It will go down from 9 to 7 units.

---

Definitions:

Vicariously Liable

Vicariously liable means being held legally responsible for the actions of another person, such as an employer being liable for acts of their employees.

Inherently Dangerous

Activities or objects that carry a risk of harm or damage as a natural part of their existence or function.

Misrepresentation Liability

Legal accountability that arises when one party provides false information during a contract or negotiation, leading to harm or loss to another.

Vicarious Liability

A legal principle that holds an individual or entity responsible for the actions of another person, usually within the context of an employment relationship.