Question

Break-Even Sales BeerBev, Inc., reported the following operating information for a recent year: Net sales $5,376,000 Cost of goods sold $1,344,000 Selling, general and administration 576,000 $1,920,000 Income from operations $ 3,456,000* *Before special items In addition, assume that BeerBev sold 48,000 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 $18,700. When computing the cost per unit amounts for the break-even formula, round to two decimal places. If required, round your final answer to one decimal place. a. Compute the break-even number of barrels for the current year. barrels b. Compute the anticipated break-even number of barrels for the following year. barrels

Answer 1

Solution:

a. Compute the break-even number of barrels for the current year. barrels.

Variable cost = 75% of the cost of goods sold + 50% of selling, general and administration expenses

= 75% * $1,344,000 + 50% * $576,000

= $1,008,000 + $288,000

= $1,296,000

Variable cost per unit = $1,296,000 / 48,000

= $27

Price per barrel = $5,376,000 / 48,000

= $112

Contribution per barrel = $112 - $27

= $85

Fixed cost = $1,920,000 - $1,296,000

= $624,000

Break Even Sale = Fixed cost / Contribution

= $624,000 / $85

= 7,341.2

Break Even Sale

7,341.2

b. Compute the anticipated break-even number of barrels for the following year. barrels.

New fixed cost = $624,000 + $18,700

= $642,700

Break Even Sale = $642,700 / $85

= 7,561.2

Break Even Sale for next year

7,561.2