   Chapter 14, Problem 6P Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Solutions

Chapter
Section Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

BREAK EVEN ANALYSIS The Warren Watch Company sells watches for $26, fixed cost 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 breaks-even point? Illustrate by means of a chart. c. What would happen to the breaks-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. Summary Introduction 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. Explanation 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,

Gain or loss=[(Sale price×unit produce)[(Variable cost×unit produce)+ Fixed cost]]

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. Gain or loss=[($26×9,000)[($13×9,000)+$155,000]]=[$234,000[$117,000+$155,000]]=$38,000

The value of loss is $38,000 b. Summary Introduction To determine: The break-even point by means of chart. c. Summary Introduction To determine: The break-even point when selling price is$33.

d.

Summary Introduction

To determine: The break-even point when selling price is $33 and variable cost is$ 24 per unit.

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