Question
Luca was a professional classical guitar player until a motorcycle accident left him disabled. After long months of? therapy, he hired an experienced luthier and
Luca was a professional classical guitar player until a motorcycle accident left him disabled. After long months of? therapy, he hired an experienced luthier and started a small shop to make and sell Spanish guitars. The guitars sell for? $700, and the fixed monthly operating costs are as? follows:
Rent and utilities | ?$810 |
Wages and benefits to luthier | ?2,500 |
Other expenses | 480 |
?Luca's accountant told him about contribution margin? ratios, and Luca understood clearly that for every dollar of? sales, $0.60 went to cover his fixed? costs, and anything above that point was profit.
Luca is planning to increase the sales price to? $750. What impact will the increase in sales price have on the contribution margin? ratio?
A.
It will stay the same.
B.
It will increase to? 53.33%.
C.
It will decrease to approximately? 49.33%.
D.
It will increase to approximately? 62.67%.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started