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Break-even analysis

The Weaver Watch Company sells watches for $25; the fixed costs are $140,000; and variable costs are $15 per watch.

a.) What is the firm's gain or loss at sale of 8,000 watches? At 18,000 watches?
b.) What is the breakeven point? Illustrate by means of a chart.
c.) What would happen to the breakeven point if the selling price were raised to $31? What is the significance of this analysis?
d.) What would happen to the breakeven point if the selling price were raised to $31 but variale costs rose to $23 a unit?

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Discussion of basics

Break-even analysis is one of the tools of the managerial accounting, a device for determining the point at which sales will just cover total costs.
or the break even point for a product is the point where total revenue received equals total costs (TR=TC). A break even point is typically calculated in order to determine if it would be worthwhile to sell a proposed product, or to try to figure out whether an existing product can be made profitable.If a firm's costs were all variable, the problem of break-even volume would never arise. By having some variable and some fixed costs, the firm must suffer losses up to a given volume.

Useful in decision making
This figure can be used to make advantageous ...

Solution Summary

Break-even analysis is showcased.

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