Break-Even Sales Anheuser-Busch InBev Companies, Inc., reported the following op
ID: 2522502 • Letter: B
Question
Break-Even Sales
Anheuser-Busch InBev Companies, Inc., reported the following operating information for a recent year:
$5,632,000
__________
528,000
_______________
$1,936,000
________________
In addition, assume that Anheuser-Busch InBev sold 44,000 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 Anheuser-Busch InBev 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 $18,500.
a. Compute the break-even number of barrels for the current year. Round to the nearest whole barrel.
_________ barrels
b. Compute the anticipated break-even number of barrels for the following year. Round to the nearest whole barrel.
_________barrels
$5,632,000
__________
Cost of goods sold $1,408,000 Selling, general and administration528,000
_______________
$1,936,000
________________
Income from operations $ 3,696,000* *Before special itemsExplanation / Answer
Anheuser-Busch InBev Companies Inc
Break-even number of barrels = fixed cost/contribution margin per barrel
Contribution margin per barrel = sales price per barrel – variable cost per barrel
Sales price per barrel = $128 ($5,632,000/44,000)
Variable cost-
Cost of goods sold per barrel = $24
Selling and admin. Cost per barrel = $6
Total variable cost per barrel = $30
Contribution margin per barrel = $128 - $30 = $98
Fixed cost –
25% of cost of goods sold = 25% of $1,408,000 = $352,000
50% of selling and admn = 50% of 528,000 = $264,000
Total fixed cost = $352,000 + $264,000 = $616,000
Break-even number of barrels = $616,000/$98 = 6,286 barrels (rounded)
Variable cost –
75% of Cost of goods sold is variable = 75% of $1,408,000 = $1,056,000
Variable cost of goods sold per barrel = $1,056,000/44,000 = $24 per barrel
50% of selling and administration =50% of $528,000 = $264,000
Variable selling and administration cost per barrel = $264,000/44,000 = $6
Break-even number of barrels = fixed cost/contribution margin per barrel
Contribution margin per barrel = sales price per barrel – variable cost per barrel
Sales price per barrel = $128 ($5,632,000/44,000)
Variable cost-
Cost of goods sold per barrel = $24
Selling and admin Cost per barrel = $6
Total variable cost per barrel = $30
Contribution margin per barrel = $128 - $30 = $98
Fixed cost –
25% of cost of goods sold = 25% of $1,408,000 = $352,000
50% of selling and admin = 50% of 528,000 = $264,000
Add: increase in new distribution expenses = $18,500
Total fixed cost = $634,500
Break-even number of barrels = $634,500/$98 = 6,474 barrels