Question

The Warren Watch Company sells watches for $29, fixed costs are $150,000, and variable costs are $15 per watch.

1. 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 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 $33?
   -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. Item 4
6. 
   
7. What would happen to the break-even point if the selling price was raised to $33 but variable costs rose to $22 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. Item 5

Answer 1

	Units Sold	6000	18000
	Selling Price	$                                   29	$                                                   29
Less	Variable cost per unit	$                                 (15)	$                                                  (15)
	Contribution per unit	$                                   14	$                                                   14
	Total Contribution(Cont per unit*No of units)	$                           84,000	$                                         252,000
Less	Fixed Cost	$                       (150,000)	$                                        (150,000)
	Total Profit	$                          (66,000)	$                                         102,000

Break Even Point units (Fixed cost/Contribution per unit)

10714 units

If selling price increases to $ 33, then contribution per unit = 33-15 = 18, and Break even point = 150000/18 = 8333 units. Thus Break even point decreases.