Break-Even Sales BeerBev, Inc., reported the following operating information for

Question

Break-Even Sales

BeerBev, Inc., reported the following operating information for a recent year:

In addition, assume that BeerBev sold 55,000 barrels of beer during the year. Assume that variable costs were 75% of the cost of goods sold and 50% of selling, general and administration expenses. Assume that the remaining costs are fixed. For the following year, assume that BeerBev expects pricing, variable costs per barrel, and fixed costs to remain constant, except that new distribution and general office facilities are expected to increase fixed costs by $26,400.

a. Compute the break-even sales (barrels) for the current year. Round to the nearest whole barrel.
barrels

b. Compute the anticipated break-even sales (barrels) for the following year. Round to the nearest whole barrel.
barrels

Net sales $6,160,000 Cost of goods sold $1,540,000 Selling, general and administration 990,000 $2,530,000 Income from operations $ 3,630,000

Explanation / Answer

Hi,

Please find the answers as follows:

Fixed Cost = (1540000*.25 + 990000*.50) = 880000

Variable Costs = (1540000*.75 + 990000*.50) = 1650000

Variable Cost Per Unit = 1650000 /55000 = 30

Selling Price Per Unit = 6160000/55000 = 112

Part A:

Break Even Sales (Barrels) = Fixed Cost/Contribution Margin =880000/(112 -30) = 10732 Barrels

Part B:

Break Even Sales (Barrels) = Fixed Cost/Contribution Margin = (880000+26400)/(112 -30) = 11054 Barrels

Thanks.

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