Question

The Warren Watch Company sells watches for $26, fixed costs are $160,000, and variable costs are $15 per watch.

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 19,000 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 $32? (increase, decrease, nothing)

What would happen to the break-even point if the selling price was raised to $32 but variable costs rose to $20 a unit? Round your answer to the nearest whole number. (increase, decrease, nothing)

Answer 1

Solution Part a: gain or (loss) at sales of 6000 watches PARTICULARS Sales Price Less: Variable Cost Contribution per unit Sales Units Total Contribution Fixed Cost Loss FIGURE 26.00 15.00 11.00 6000.00 66000.00 160000.00 -94000.00 Hence, Loss is -94000 Part b: gain or (loss) at sales of 19000 watches PARTICULARS Sales Price Less: Variable Cost Contribution per unit Sales Units Total Contribution Fixed Cost Loss FIGURE 26.00 15.00 11.00 19000.00 209000.00 160000.00 49000.00 Hence, gain is 49000 Part c: Break-Even point (unit sales) PARTICULARS Sales Price Less: Variable Cost Contribution per unit Fixed Cost Operating Break Even (Fixed Cost / Contribution per unit) FIGURE 26.00 15.00 11.00 160000.00 14545 units Hence, breakeven point is 14545 units. Part d: Break-Even point if sale price increased to 32 PARTICULARS Sales Price Less: Variable Cost Contribution per unit Fixed Cost Operating Break Even (Fixed Cost / Contribution per unit) FIGURE 32.00 15.00 17.00 160000.00 9412 units Hence, breakeven point decreases from 14545 units to 9412 units. Part e: Break-Even point if sale price increased to 32

PARTICULARS Sales Price Less: Variable Cost Contribution per unit Fixed Cost Operating Break Even (Fixed Cost / Contribution per unit) FIGURE 32.00 20.00 12.00 160000.00 13333 units Hence, breakeven point decreases from 14545 units to 13333 units.