Jakob Fletcher was a professional classical guitar player until his motorcycle accident that left him disabled. After long months of therapy, he hired an experienced maker of stringed instruments 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 maker of string instruments
Jakob’s accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales, $0.65 went to cover his fixed costs, and that anything past that point was pure profit.
Jakob wishes to earn $4,000 of operating profit each month. Calculate the number of guitars Jakob will have to sell to achieve the target profit.
Question 30 options: