Question

**4- The Warren Watch Company sells watches for $25, fixed
costs are $100,000, and variable costs are $10 per
watch.**

**A/ What is the firm's gain or loss at sales of 7,000
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 20,000 watches? Enter
loss (if any) as negative value. Round your answer to the nearest
cent.
$**

**B/ What is the break-even point (unit sales)? Round your
answer to the nearest whole number.
units**

**C/ What would happen to the break-even point if the
selling price was raised to $32?**

**the result is that the break-even point is
lower**

**the result is that the break-even point is
Higher**

**the result is that the break-even point remains
unchanged**

**D/ What would happen to the break-even point if the selling
price was raised to $32 but variable costs rose to $25 a unit?
Round your answer to the nearest whole number.**

**the result is that the break-even point
increases**

**the result is that the break-even point
decreases**

**the result is that the break-even point remains
unchanged**

Answer #1

**A) Firm's gain or loss at sales of 7,000
watches**

[(Selling Price - Variable Cost)x No .of units Sold - Fixed Cost]

= {($25-$10)x 7000 - $100,000}

=$105,000 - $100,000

= **$5000**

**B) Firm's gain or loss at sales of 20,000
watches**

[(Selling Price - Variable Cost)x No .of units Sold - Fixed Cost]

= {($25-$10)x 20,000 - $100,000}

=$300,000 - $100,000

= **$200,000**

**C) Break-even point (unit sales)**

Break even point = Fixed Cost / (Selling price per unit - variable cost per unit)

Break even point = 100,000 / (25- 10)

Break even point = 100,000 / 15

**Break even point =6667 units (rounded off)**

**D) Break-even point if the selling price was raised to
$32**

Break even point = Fixed Cost / (Selling price per unit - variable cost per unit)

Break even point = 100,000 / (32- 10)

Break even point = 100,000 / 22

**Break even point =4545 units (rounded off)**

**The correct answer is option A i.e. The result is that
the break-even point is lower**

**E) Break-even point if the selling price was raised to
$32 but variable costs rose to $25 a unit**

Break even point = Fixed Cost / (Selling price per unit - variable cost per unit)

Break even point = 100,000 / (32 -25)

Break even point = 100,000 / 7

**Break even point =14286 units (rounded off)**

**The correct answer is option A i.e. the result is that
the break-even point increases**

**Thumbs up Please! Thank You**

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