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

Answer :

1.) Calculation of Gain or Loss at sales of 5,000 Watches

Particulars	Quantity	Price	Total
Sales	5000	29	145,000
(-) Variable Cost	5000	13	(65,000)
(-) Fixed Cost			(170,000)
Profit / (Loss)			$ (90000)

2.) Calculation of Gain or Loss at sales of 18,000 Watches

Particulars	Quantity	Price	Total
Sales	18,000	29	522,000
(-) Variable Cost	18,000	13	(234,000)
(-) Fixed Cost			(170,000)
Profit / (Loss)			$ 118,000

3.) Calculation of Break-even point (unit sales)

Break even Sales ( in units ) = Fixed Cost / ( Selling price per unit - Variable cost per unit)

= $ 170,000/ ( 29 - 13 )

= 10625 units

4.) Break-even point if the selling price was raised to $31

Break even Sales ( in units ) = Fixed Cost / ( Selling price per unit - Variable cost per unit)

= $ 170,000/ ( 31 - 13 )

= 9444.44 units OR 9,444 units

The result is that the break-even point is lower.

5.)  Break-even point if the selling price was raised to $31 but variable costs rose to $22 a unit

Break even Sales ( in units ) = Fixed Cost / ( Selling price per unit - Variable cost per unit)

= $ 170,000/ ( 31 - 22 )

= 18,888.88 units or 18,889 units

The result is that the break-even point increases.