Question

Break-Even Sales

BeerBev, Inc., reported the following operating information for a recent year:

Net sales	$5,632,000
Cost of goods sold	$1,408,000
Selling, general and administration	576,000
	$1,984,000
Income from operations	$ 3,648,000

In addition, assume that BeerBev sold 32,000 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 $19,200.

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

Answer 1

						Variable	Fixed cost
		Cost of goods sold (1,408,000*75%;25%)				1056000	352000
		Selling,general and administration				288000	288,000
		total				1344000	640000
		Contribution margin
		sales					5,632,000
		less:Variable expense
		cost of goods sold					-1056000
		Selling,general and administration					-288000
		Contribution margin					4,288,000
		Contribution margin per unit 4288,000/32000
					134
	a)	BEP(barrels)     =   Fixed cost/contribution margin
				640,000/134
				4776	answe
	b)	BEP(barrels)     =   Fixed cost/contribution margin
				(640000+19200)/134
				4919	answe