BREAK-EVEN ANALYSIS The Weaver Watch Company sells watches for $25, the fixed co
ID: 667082 • Letter: B
Question
BREAK-EVEN ANALYSIS
The Weaver Watch Company sells watches for $25, the fixed costs are $140,000, and variable costs are $15 per watch.
What is the firm’s gain or loss at sales of 8,000 watches? At 18,000 watches?
What is the break-even point? Illustrate by means of a chart.
What would happen to the break-even point if the selling price was raised to $31? What is the significance of this analysis?
What would happen to the break-even point if the selling price was raised to 31 but variable costs rose to $23 a unit?
Explanation / Answer
Ans:
Selling Price per unit $25 Total Fixed Cost $140,000 Variable Cost per unit $15 Total units sold 8,000 (a) Calculating Gain/Loss at 8,000units Sales: Sales (8,000 * $25) $200,000 Less: VC (8,000 * $15) $120,000 Contribution $80,000 Less: Fixed Cost $140,000 Loss ($60,000) Calculating Gain/Loss at 18,000units Sales: Sales (18,000 * $25) $450,000 Less: VC (18,000 * $15) $270,000 Contribution $180,000 Less: Fixed Cost $140,000 Profit $40,000 (b) Calculating Break-evenPoint : Fixed OperatingCosts = $140,000 Variable Cost per unit = $15 per watch Selling Price perunit = $25 per watch Break-even Point (inunits) = Total Fixed Costs / Contribution Margin perunit Break-even Point (inunits) = $140,000 / ($25-$15) Break-even Point (inunits) = 14,000 units ( c) Calculating Brek even point if theselling price were raised to $31: Break-even Point (inunits) = $140,000 / ($31-$15) Break-even Point (inunits) = 8,750 units (d) Calculating Break even point if theseeling price were raised to $31 and vairable costs rose $23 : Break-even Point (inunits) = $140,000 / ($31-$23) Break-even Point (inunits) = 17,500 unitsRelated Questions
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