BREAK-EVEN ANALYSIS
The Warren Watch Company sells watches for $27, fixed costs are $175,000, and variable costs are $11 per watch.
Gain = Sales – variable costs – Fixed costs
a.Gain = (27-11)*7,000 – 175,000
= -$63,000
i.e. loss
b.Gain = 16000*16 – 175000
= $81,000
i.e. gain
c.Break even unit sales = Fixed costs/(Selling price per watch – variable cost per watch)
= 175,000/16
= 10,937.5 watches
c. The result is that the break-even point is lower. Since contribution margin will increase
d.The result is that the break even point is higher. since contribution margin will decrease.
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