Martin wishes to earn $4000 of operating profit each month. Calculate the number of guitars Martin will need to sell to achieve the target profit. (Round your answer up to the nearest whole guitar.)

Question

Martin 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 $900, and the fixed monthly operating costs are as follows:



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

dollar of sales, $0.65 went to cover his fixed costs, and anything above that point was profit.

A) 3 guitars

B) 12 guitars

C) 4 guitars

D) 13 guitars

Answer 1

D) 13 guitars
Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit
Contribution margin per unit = $900 × 0.65 = $585
Total fixed costs = $800 + $2000 + $474 = $3274
Target profit = $4000
Required sales in units = ($3274 + $4000) / $585 = 13 guitars