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