Question

The Warren Watch Company sells watches for $21, fixed costs are $165,000, and variable costs are $11 per watch.

lower

higher

1. What is the firm's gain or loss at sales of 9,000 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 18,000 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?
   unchanged
6. What would happen to the break-even point if the selling price was raised to $32 but variable costs rose to $25 a unit? Round your answer to the nearest whole number.
   -Select-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

Answer of Part a:

Selling Price = Units * Selling price per unit
Selling Price = 9,000 * $21
Selling Price = $189,000

Variable Cost = Units * Variable Cost per unit
Variable Cost = 9,000 * $11
Variable Cost = $99,000

Gain or loss = Selling price – Variable cost – Fixed Costs
Gain or loss = $189,000 - $99,000 - $165,000
Loss = $75,000

Answer of Part b:

Selling Price = Units * Selling price per unit
Selling Price = 18,000 * $21
Selling Price = $378,000

Variable Cost = Units * Variable Cost per unit
Variable Cost = 18,000 * $11
Variable Cost = $198,000

Gain or loss = Selling price – Variable cost – Fixed Costs
Gain or loss = $378,000 - $198,000 - $165,000
Gain = $15,000

Answer of Part c:

Contribution Margin per unit = Selling price per unit – Variable cost per unit
Contribution Margin per unit = $21 - $11
Contribution Margin per unit = $10

Break Even point in units = Fixed Cost / Contribution Margin per unit
Break Even point in Units = $165,000 / $10
Break Even Point in Units = 16,500

Break Even point in Sales = Break Even point in units * Selling price per unit
Break Even point in Sales = 16,500 * $21
Break Even point in Sales = $346,500

Answer of Part d:

Proposed Contribution Margin per unit = Selling price per unit – Variable cost per unit
Proposed Contribution Margin per unit = $32 - $11
Proposed Contribution Margin per unit = $21

Proposed Break Even point in units = Fixed Cost / Contribution Margin per unit
Proposed Break Even point in Units = $165,000 / $21
Proposed Break Even Point in Units = 7,857

Proposed Break Even point in Sales = Break Even point in units * Selling price per unit
Proposed Break Even point in Sales = 7,857 * $32
Proposed Break Even point in Sales = $251,424

Proposed Break Even point in Units and Sales will decrease if selling price was raised to $32