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Document 42

The document discusses break-even analysis for the Weaver Watch Company. It finds that at a sales volume of 8,000 watches, the company would lose $60,000, and would gain $40,000 at 18,000 watches sold. The break-even point is calculated to be 14,000 watches. Raising the price to $31 would lower the break-even point to 8,750 watches sold. However, if the variable cost also rose to $23, then the break-even point would increase to 17,500 watches sold.

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Marian Augelio Polanco
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71 views3 pages

Document 42

The document discusses break-even analysis for the Weaver Watch Company. It finds that at a sales volume of 8,000 watches, the company would lose $60,000, and would gain $40,000 at 18,000 watches sold. The break-even point is calculated to be 14,000 watches. Raising the price to $31 would lower the break-even point to 8,750 watches sold. However, if the variable cost also rose to $23, then the break-even point would increase to 17,500 watches sold.

Uploaded by

Marian Augelio Polanco
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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15-6 BREAKEVEN ANALYSIS.

The Weaver Watch Company sells watches for $25, fixed


costs are $140,000, and variable costs are $15 per watch.

A. What is the firm’s gain or loss at sales of 8,000 watches? At 18,000 watches?

SALES 25 x 8,000 = 200,000


VARIABLE COST 15 x 8,000 = (120,000)
FIXED COST = (140,000)

LOSS AT SALES (8,000 watches) = ($ 60,000 )

SALES 25 x 18,000 = 450,000


VARIABLE COST 15 x 18,000 = (270,000)
FIXED COST = 140,000)

GAIN AT SALES (18,000 watches) = $ 40,000

B. What is the break-even point? Illustrate by means of a chart.

BREAK-EVEN SALE UNITS = 140,000 / (25 - 15)


= 14,000

C. What would happen to the break-even point if the selling price was raised to $31? What is
the significance of this analysis?

This study source was downloaded by 100000842961867 from CourseHero.com on 05-15-2023 20:00:26 GMT -05:00

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BREAK-EVEN SALE UNITS = 140,000 / (31 - 15)
= 8,750

Proof:

Sales ( 8,750 x 31 ) = 271,250


Total Variable Cost (8,750 x 15) = 131,250
Contribution Margin = 140,000
Fixed costs = 140,000
Break-even = 0

If selling price is raised to $31, the total costs and expenses by the business can be covered at
lesser units sold of 8,750, since their sales increased and their costs remained the same.

D. What would happen to the break-even point if the selling price was raised to $31 but
variable costs rose to $23 a unit?

BREAK-EVEN SALE UNITS = 140,000 / (31 - 23)


= 17,500

Proof:

Sales (17,500 x 31) = 542.500


Total Variable Cost (17,500 x 23) = 402,500
Contribution Margin = 140,000
Fixed costs = 140,000
Break-even = 0

This study source was downloaded by 100000842961867 from CourseHero.com on 05-15-2023 20:00:26 GMT -05:00

https://www.coursehero.com/file/140944947/Document-42docx/
If selling price is raised to $31 but variable costs are also increased at $23, the total costs and
expenses also increase and at the same time, there is a need of more units to be sold (at 17,500
units) for the company to cover up their total costs and expenses.

This study source was downloaded by 100000842961867 from CourseHero.com on 05-15-2023 20:00:26 GMT -05:00

https://www.coursehero.com/file/140944947/Document-42docx/
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