Question

Break-Even Sales

BeerBev, Inc., reported the following operating information for a recent year (in millions):

Sales	$3,248
Cost of goods sold	$812
Gross profit	$2,436
Marketing, general, and admin. expenses	522
Income from operations	$ 1,914

Assume that BeerBev sold 29 million barrels of beer during the year, that variable costs were 75% of the cost of goods sold and 50% of marketing, general and administration expenses, and 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 $13.92 million.

a. Compute the break-even sales (in barrels) for the current year. Round your answer to two decimal places. Enter your answers in millions.
million barrels

b. Compute the anticipated break-even sales (in barrels) for the following year. Round your answer to two decimal places. Enter your answers in millions.
million barrels

Answer 1

		Current Year
Sales		3248
less: variable Costs
- COGS (812 * 75%)	609
- Marketing, General & Admin. (522 * 50%)	261	870
Contribution Margin		2378
Less: Fixed Costs
- COGS (812 * 25%)	203
- Marketing, General & Admin. (522 * 50%)	261	464
Net Income		1914

a)

Break Even Point (Units) = Fixed Costs / Contribution Margin per unit

Fixed Costs = S 464 million

Contribution Margin per Unit = 2378/29 = $82 per million barrel

Break Even Point (Units) = 464/82 = 5.658 million barrel

b)

Fixed Costs = 464 + 13.92 = $ 477.92 million

Break Even Point (Units) = 477.92 / 82 = 5.828 million barrel