Pheonix 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 Wages and benefits to luthier Other expenses $800 2,510 480 Pheonix's accountant told him about contribution margin ratios, and Pheonix understood clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and anything above that point was profit. Pheonix is planning to increase the sales price to $760. What impact will the increase in sales price have on the contribution margin ratio? OA. It will increase to 52.11%. OB. It will stay the same. OC. It will increase to approximately 63.16%. OD. It will decrease to approximately 47.37%.
Pheonix 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 Wages and benefits to luthier Other expenses $800 2,510 480 Pheonix's accountant told him about contribution margin ratios, and Pheonix understood clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and anything above that point was profit. Pheonix is planning to increase the sales price to $760. What impact will the increase in sales price have on the contribution margin ratio? OA. It will increase to 52.11%. OB. It will stay the same. OC. It will increase to approximately 63.16%. OD. It will decrease to approximately 47.37%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Pheonix 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
Wages and benefits to luthier
Other expenses
$800
2,510
480
Pheonix's accountant told him about contribution margin ratios, and Pheonix understood clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and anything above that point was profit.
Pheonix is planning to increase the sales price to $760. What impact will the increase in sales price have on the contribution margin ratio?
OA. It will increase to 52.11%.
OB. It will stay the same.
OC. It will increase to approximately 63.16%.
OD. It will decrease to approximately 47.37%.
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