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BREAK-EVEN ANALYSIS The Warren Watch Company sells watches for $26, fixed costs are $155,000, and variable costs are $13 per watch.
- a. What is the firm's gain or loss at sales of 9,000 watches? At 15,000 watches?
- b. What is the break-even point? Illustrate by means of a chart.
- c. What would happen to the break-even point if the selling price was raised to $33? What is the significance of this analysis?
- d. What would happen to the break-even point if the selling price was raised to $33 but variable costs rose to $24 a unit?
a.
To determine: The firm’s gain or loss at sales of 9,000 watches and at sales of 15,000 watches.
Introduction:
Break-even Analysis:
Break-even analysis is a type of tool used by the cost accountant professionals to find out the number of unit produced when the total cost is equal to the company revenue.
Given information:
For 9000 units
Selling price is $26 per watch.
Fixed cost is $155,000.
Variable cost is $13 per watch.
The formula to calculate gain or loss is,
Substitute $26 for sale price, 9000 units for unit produce, $13 per unit for variable cost and $155,000 for fixed cost in the above equation.
The value of loss is $38,000
b.
To determine: The break-even point by means of chart.
c.
To determine: The break-even point when selling price is $33.
d.
To determine: The break-even point when selling price is $33 and variable cost is $ 24 per unit.
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