Question

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. 
   
3. What is the break-even point (unit sales)? Round your answer to the nearest whole number.
   units
4. 
   
5. 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.
6. 
   
7. 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.

Answer 1

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