How many guitars does Ajax need to sell each month to break even? (Round your answer up to the nearest whole guitar.)

Question

Ajax was a professional classical guitarist 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 $800, and the fixed monthly operating costs are as follows:



Ajax's accountant told him about contribution margin ratios, and Ajax understood clearly that for every

dollar of sales, $0.60 went to cover his fixed costs, and anything above that point was profit.

A) 5 guitars

B) 3 guitars

C) 7 guitars

D) 8 guitars

Answer 1

D) 8 guitars
Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit
Contribution margin per unit = $800 × 0.60 = $480
Total fixed costs = $600 + $2300 + $479 = $3379
Required sales in units = ($3379 + $0) / $480 = 8 guitars