Question

**BREAK-EVEN ANALYSIS**

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

- 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.

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

units - 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. - 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.

Answer #1

**Answer of Part a:**

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**

**Answer of Part b:**

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**

**Answer of Part c:**

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**

**Answer of Part d:**

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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