Break-Even Sales Anheuser-Busch InBev Companies, Inc., reported the following op
ID: 2535569 • Letter: B
Question
Break-Even Sales Anheuser-Busch InBev Companies, Inc., reported the following operating information for a recent year: Sales $7,520,000 Cost of goods sold $1,880,000 Selling, general and administration 470,000 $2,350,000 Income from operations $ 5,170,000* *Before special items In addition, assume that Anheuser-Busch InBev sold 47,000 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 $21,200. 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
Explanation / Answer
Variable costs = ( 1880000 * 75 % ) + ( 470000 * 50 % ) = $ 1645000
VC per unit = $ 1645000 / 47,000 barrels = $ 35
SP per unit = $7,520,000 / 47,000 barrels = $ 160
CM per unit = 160 - 35 = $ 125
Fixed costs = ( 1880000 * 25 % ) + ( 470000 * 50 % ) = $ 705000
a. Compute the break-even number of barrels for the current year.
Fixed costs / CM per unit = 705000 / 125 = 5640 barrels
b. Compute the anticipated break-even number of barrels for the following year.
Fixed costs / CM per unit = ( 705000 + 21200 ) / 125 = 5810 barrels