Question

The Warren Watch Company sells watches for $23, fixed costs are $160,000, and variable costs are $14 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 15,000 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 $34? -Select-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. What would happen to the break-even point if the selling price was raised to $34 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 a.

Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $23 - $14
Contribution margin per unit = $9

Operating income = Contribution margin per unit * Units sold - Fixed costs
Operating income = $9 * 6,000 - $160,000
Operating income = -$106,000

Answer b.

Operating income = Contribution margin per unit * Units sold - Fixed costs
Operating income = $9 * 15,000 - $160,000
Operating income = -$25,000

Answer c.

Breakeven point = Fixed costs / Contribution margin per unit
Breakeven point = $160,000 / $9
Breakeven point = 17,778 units

Answer d.

Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $34 - $14
Contribution margin per unit = $20

Breakeven point = Fixed costs / Contribution margin per unit
Breakeven point = $160,000 / $20
Breakeven point = 8,000 units

The result is that the break-even point is lower.

Answer e.

Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $34 - $25
Contribution margin per unit = $9

Breakeven point = Fixed costs / Contribution margin per unit
Breakeven point = $160,000 / $9
Breakeven point = 17,778 units

The result is that the break-even point remains unchanged.