Question

The Warren Watch Company sells watches for $21, fixed costs are $125,000, and variable costs are $13 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 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 $34?
   -Select- A)The result is that the break-even point is lower. B)The result is that the break-even point is higher. C)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 $21 a unit? Round your answer to the nearest whole number.
   -Select- A)The result is that the break-even point increases. B)The result is that the break-even point decreases. C)The result is that the break-even point remains unchanged.

Answer 1

a. Sales = 6000 watches * $ 21

Variable Cost = 6000 watches * $ 13

Contribution Margin = Sales - Variable Cost

= 6000 watches * ( $ 21- $ 13)

= $ 48,000

Profit / Loss = Contribution Margin - Fixed cost

= $ 48,000-  $125,000

= - $ 77,000

Hence the correct answer is - $ 77,000

b.

Sales = 16000 watches * $ 21

Variable Cost = 16000 watches * $ 13

Contribution Margin = Sales - Variable Cost

= 16000 watches * ( $ 21- $ 13)

= $ 128,000

Profit / Loss = Contribution Margin - Fixed cost

= $ 128,000-  $125,000

= $ 3,000

Hence the correct answer is $ 3,000

c. The  break-even point (unit sales) = Fixed cost / contribution margin per unit

= $ 125,000 / ( $ 21-$ 13)

= 15,625 units

Hence the correct answer is 15,625 units

d.

The  break-even point (unit sales) = Fixed cost / contribution margin per unit

= $ 125,000 / ( $ 34-$ 13)

= 5952.38 units

= 5952 units

Hence the correct answer is :

A)The result is that the break-even point is lower