Break-Even Sales BeerBev, Inc., reported the following operating information for
ID: 2527273 • Letter: B
Question
Break-Even Sales
BeerBev, Inc., reported the following operating information for a recent year:
In addition, assume that BeerBev sold 31,000 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 $14,000.
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
Explanation / Answer
Answer
(a) Break-even sales(barrels) for the current year
Break-even sales = Fixed Cost / Contribution per unit
Calculation of Contribution per unit
Cost of Goods Sold - $ 744,000
- Variable cost (75%) = $ 558,000
- Fixed cost (25%) = $ 186,000
Selling, General and administration - $ 558,000
- Variable cost (50%) = $ 279,000
- Fixed cost (50%) = $ 279,000
Therefore Total Variable Cost = ($ 558,000 + $ 279,000) = $ 837,000
Total Fixed Cost = ($ 186,000 + $ 279,000) = $ 465,000
Contribution = Sales - Variable cost
= $ 2,976,000 - $ 837,000
= $ 2,139,000
Contribution per unit = $ 2,139,000 / 31000
= $69
Break Even Sales = $ 465,000 / $ 69
= 6739 barrels
(b) Anticipated Break-even sales(barrels) for the following year
Contribution per unit = $ 69
New Fixed Cost = $ 465,000 + $ 14,000
= $ 479,000
Break Even Sales = $ 479,000 / $ 69
= 6942 barrels