Question

The Warren Watch Company sells watches for $23, fixed costs are $140,000, and variable costs are $10 per watch.

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 $34?
   -Select-The result is that the break-even point is lower.The result is that the break-even point is higher.The result is that the break-even point remains unchanged.
6. 
   
7. What would happen to the break-even point if the selling price was raised to $34 but variable costs rose to $23 a unit? Round your answer to the nearest whole number.
   -Select-The result is that the break-even point increases.The result is that the break-even point decreases.The result is that the break-even point remains unchanged.

Answer 1

Selling Price = S = $23

Fixed Cost = F = $140000

Variable Cost = V = $10

(a) Profit = Sales - Fixed Cost - Variable Cost

when number of watches = 9000, Profit = 23*9000 - 140000 - 10*9000 = - $23000

Hence, a loss of $23000

(b) Profit = Sales - Fixed Cost - Variable Cost

when number of watches = 18000, Profit = 23*18000 - 140000 - 10*18000 = $94000

Hence, a profit of $94000

(c) Let the breakeven point be x

At breakeven, Sales = Costs

=> Sales = Fixed Cost + Variable Cost

=> 23x = 140000 + 10x

=> x = 140000/(23 - 10) = 10769.23

Hence, breakeven point is 10769 watches

(d) Selling Price = S = $34

Let the breakeven point be x

At breakeven, Sales = Costs

=> Sales = Fixed Cost + Variable Cost

=> 34x = 140000 + 10x

=> x = 140000/(34 - 10) = 5833.33

Hence, breakeven point is 5833 watches

Hence, the breakeven point is lower

(e) Selling Price = S = $34

Variable Cost = V = $23

Let the breakeven point be x

At breakeven, Sales = Costs

=> Sales = Fixed Cost + Variable Cost

=> 34x = 140000 + 23x

=> x = 140000/(34 - 23) = 12727.27

Hence, breakeven point is 12727 watches

=> breakeven point is higher