Question

The Warren Watch Company sells watches for $20, fixed costs are $200,000, and variable costs are $13 per watch.

1. What is the firm's gain or loss at sales of 5,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent.
   $ ______
   
   What is the firm's gain or loss at sales of 18,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent.
   $________
2. 
   
3. What is the break-even point (unit sales)? Round your answer to the nearest whole number.
   ____units

Answer 1

Ans:

Fixed costs : $200,000

Sell Price : $20

Variable Cost : $13

Contribution Per Unit : Sell price - Variable Cost

= $20 - $13 = $7 per unit.

1.

Sale Units : 5,000

Gain (Loss) : Sale Units * Contribution per Unit - Fixed Costs

= 5,000 * $7 - $200,000 = ($165,000)

2.

Sale Units : 18,000

Gain (Loss) : Sale Units * Contribution per Unit - Fixed Costs

= 18,000 * $7 - $200,000 = ($74,000)

3.

Break Even Sales : Fixed Costs / Contribution Per Unit

= $200,000 / $7 = 28,571.43 Units or 28,571 Units

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