Colin was a professional classical guitar player until his motorcycle accident that left him disabled. After long months of therapy, he hired an experienced luthier (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:

Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and that anything past that point was pure profit.

Colin is planning to increase the selling price to $750. What impact will the increase in selling price have on the contribution margin ratio?

A) It will stay the same.

B) It will go up 70% to 75%.

C) It will go up from 60% to approximately 63%.

D) It will go down from 70% to approximately 67%.

Transcribed Image Text:

Rent and utilities $800 Wages and benefits to luthier 2,500 Other expenses 480 Rent and utilities $800 Wages and benefits to luthier 2,500 Other expenses 480

Answer rating: 100% (QA)

C It will go up from 60 to approximately ... View the full answer