Question

# BREAK-EVEN ANALYSIS The Warren Watch Company sells watches for \$26, fixed costs are \$150,000, and variable...

BREAK-EVEN ANALYSIS

The Warren Watch Company sells watches for \$26, fixed costs are \$150,000, and variable costs are \$12 per watch.

1. 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 17,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent.
\$

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

3. What would happen to the break-even point if the selling price was raised to \$31?
-Select-The result is that the break-even point remains unchanged. The result is that the break-even point is lower. The result is that the break-even point is higher.

4. What would happen to the break-even point if the selling price was raised to \$31 but variable costs rose to \$26 a unit? Round your answer to the nearest whole number.
-Select-The result is that the break-even point remains unchanged.The result is that the break-even point increases. The result is that the break-even point decreases.

Selling price per unit = \$26

Variable cost per unit = \$12

Total Sales = Unit * Selling price per unit
Total Sales = 7,000 * \$26
Total Sales = \$182,000

Total Cost = Fixed Cost + Variable Cost
Total Cost = \$150,000 + (\$12 * 7,000)
Total Cost = \$150,000 + \$84,000
Total Cost = \$234,000

Loss = Sales – Cost
Loss = \$182,000 - \$234,000
Loss = -\$52,000

Selling price per unit = \$26

Variable cost per unit = \$12

Total Sales = Unit * Selling price per unit
Total Sales = 17,000 * \$26
Total Sales = \$442,000

Total Cost = Fixed Cost + Variable Cost
Total Cost = \$150,000 + (\$12 * 17,000)
Total Cost = \$150,000 + \$204,000
Total Cost = \$354,000

Gain = Sales – Cost
Gain = \$442,000 - \$354,000
Gain = \$88,000

Contribution Margin per unit = Selling price per unit – Variable Cost per unit
Contribution Margin per unit = \$26 - \$12
Contribution Margin per unit = \$14

Break Even Point in Units = Fixed Cost / Contribution Margin per unit
Break Even Point in Units = \$150,000 / \$14
Break Even Point in Units = 10,714 unit

Contribution Margin = New Selling price per unit – Variable cost per unit
Contribution Margin per unit = \$31 -\$12
Contribution Margin per unit = \$19

Break Even Point in Units = Fixed Cost / Contribution Margin per unit
Break Even Point in Units = \$150,000 / \$19
Break Even Point in Units = 7,895 units

Due to increase in selling price the break-even point is lower

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