Question

The Warren Watch Company sells watches for $24, fixed costs are $120,000, and variable costs are $12 per watch.

1. What is the firm's gain or loss at sales of 8,000 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 16,000 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 $35?
   -Select-The result is that the break-even point is higher.The result is that the break-even point remains unchanged.The result is that the break-even point is lower.
6. 
   
7. What would happen to the break-even point if the selling price was raised to $35 but variable costs rose to $28 a unit

Answer 1

1	Sales = 8000*24 =	$        1,92,000
	Variable cost = 8000*12 =	$           96,000
	Contribution margin = 192000-96000 =	$           96,000
	Fixed costs	$        1,20,000
	Loss	$          -24,000
2	Sales = 16000*24 =	$        3,84,000
	Variable cost = 16000*12 =	$        1,92,000
	Contribution margin = 192000-192000 =	$        1,92,000
	Fixed costs	$        1,20,000
	Profit	$           72,000
3	BEP in units = Fixed expenses/CM unit = 120000/(24-2) =	5455	Units
4	If the selling price is raised to $35.
	The result is that the break-even point is lower.
	as the CM per unit will increase to $23 [35-12]
	from $12 [24-12].
	The revised BEP in units would be 120000/23 =	5217	Units
5	If the selling price was raised to $35 but variable costs rose to $28 a unit
	The CM per unit becomes lower at $7 [35-8]
	The revised BEP in units would be 120000/7 =	17143	Units
	The result is that the break-even point is higher
	Note:
	Answers have been provided for all questions as
	1,2……………… The marking of the questions as a,b
	is not clear.