Question

The Warren Watch Company sells watches for $29, fixed costs are $170,000, and variable costs are $13 per watch.

1. What is the firm's gain or loss at sales of 5,000 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 $31?
   -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 $31 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.

Answer 1

Solution a & b			Units	Units
		Per unit	$                 5,000	$                 18,000
	Sale revenue	$                                                29.00	$             145,000	$               522,000
	Variable cost	$                                                13.00	$               65,000	$               234,000
	Contribution per bag (Sale less variable cost)	$                                                16.00	$               80,000	$               288,000
	Fixed cost		$             170,000	$               170,000
	Net Income		=80000-170000	=288000-170000
	Net Income		$             (90,000)	$               118,000
Solution c
	Sale revenue	$                                                29.00
	Variable cost	$                                                13.00
	Contribution per bag (Sale less variable cost)	$                                                16.00
	Fixed cost	$                                            170,000
	Break-even point=	Fixed cost/contribution per bag
	Break-even point=	=170000/16
	Break-even point=	10,625	Units
Solution d
	Sale revenue	$                                                31.00
	Variable cost	$                                                13.00
	Contribution per bag (Sale less variable cost)	$                                                18.00
	Fixed cost	$                                            170,000
	Break-even point=	Fixed cost/contribution per bag
	Break-even point=	=170000/18
	Break-even point=	9,444	Units
	BEP point has decreased from 10,625 units to 9,444.
Solution e
	Sale revenue	$                                                31.00
	Variable cost	$                                                22.00
	Contribution per bag (Sale less variable cost)	$                                                  9.00
	Fixed cost	$                                            170,000
	Break-even point=	Fixed cost/contribution per bag
	Break-even point=	=170000/9
	Break-even point=	18,889	Units
	BEP point has increased from 10,625 units to 18,889 units