Question

The Warren Watch Company sells watches for $28, fixed costs are $155,000, and variable costs are $12 per watch. What is the firm's gain or loss at sales of 6,000 watches? Loss, if any, should be indicated by a minus sign. Round your answer to the nearest cent.

$ What is the firm's gain or loss at sales of 16,000 watches? Loss, if any, should be indicated by a minus sign. 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 $31?

What would happen to the break-even point if the selling price was raised to $31 but variable costs rose to $27 a unit? Round your answer to the nearest whole number.

Answer 1

Original data
Sales revenue	$28	per watch
Fixed costs	$155,000
Variable costs	$12	per watch
Firm's gain or loss if 6,000 watches are sold
Sales revenue (28*6000)	$168,000
Less: Variable costs (12*6000)	$72,000
Contribution margin	$96,000
Less: Fixed costs	$155,000
Profit (Loss)	-$59,000
Thus, loss on sale of 6,000 watches is -$59,000
Firm's gain or loss if 16,000 watches are sold
Sales revenue (28*16000)	$448,000
Less: Variable costs (12*16000)	$192,000
Contribution margin	$256,000
Less: Fixed costs	$155,000
Profit (Loss)	$101,000
Thus, profit on sale of 16,000 watches is $101,000
Break-even point	Fixed costs/Contribution margin per unit
Contribution margin per unit	Sales price - Variable costs
Break-even point	155000/(31-12)
Break-even point	155000/19
Break-even point	8158	watches
Calculate break-even point if sales price is $31 and variable costs is $27
Break-even point	155000/(31-27)
Break-even point	155000/4
Break-even point	38750	watches