please explain the answer 1) Miranda was reviewing the water bill for her dog da

Question

please explain the answer

1) Miranda was reviewing the water bill for her dog day care and spa and determined that her highest bill, $5,000, occurred in July when she washed 500 dogs and her lowest bill, $3,600, occurred in February when she washed 325 dogs. What was the variable cost per dog associated with Miranda's water bill? 1) A) $8.00 3) Adam 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 $900 and the fixed monthly operating costs are as follows: Rent and utilities Wages and benefits to luthier3,000 Other expenses 800 500 Adam'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 How many guitars does Adam have to sell each month to break even? 3) A) 8 guitars

Explanation / Answer

1) Calculate variable cost per dog :

Variable cost per dog = Change in cost/change in activity

                               = (5000-3600)/(500-325)

Variable cost per dog = $8 per dog

3) Calculate how many guitars does Adam have to sell each month to break even :

Fixed cost = 800+3000+500 = 4300

Contribution margin per unit = 900*.60 = 540

Break even = Fixed cost/contribution margin per unit = 4300/540 = 8 guitars

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