Question

# BREAK-EVEN ANALYSIS The Warren Watch Company sells watches for \$25, fixed costs are \$105,000, and variable...

BREAK-EVEN ANALYSIS

The Warren Watch Company sells watches for \$25, fixed costs are \$105,000, and variable costs are \$14 per watch.

1. What is the firm's gain or loss at sales of 6,000 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.
\$

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 \$32?
-Select the correct option.   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 \$32 but variable costs rose to \$28 a unit? Round your answer to the nearest whole number.
-Select the correct option. 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.

A) Sales 150000 (6000*25)

- Variable cost 84000 (6000*14)

= Contribution 66000

- Fixed cost 105000

=Profit/loss. 39000 loss

B)Sales 500000 (20000*25)

-Variable cost 280000 (20000*14)

Contribution 220000

-Fixed cost 105000

Profit/loss 115000 profit

C) Sales 91000

-VC 14000 assuming no of units 1000

C 105000

-FC 105000

PROFIT/LOSS NIL

Therefore 91000/25= 3640 units

D) Takint into account the data of POINT C ans will be 91000/32 = 2844 units which resulted in break even point being lower then point C

E) S 77000

-VC 28000 (Assuming no of units to be 1000)

C 105000

-FC 105000

PROFIT/LOSS NIL

Break even point in terms of unit will be 77000/25= 3080 units

The break even point has increased

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