Question

Break-Even Sales

Anheuser-Busch InBev Companies, Inc., reported the following operating information for a recent year:

Sales	$4,896,000
Cost of goods sold	$1,224,000
Selling, general and administration	544,000
	$1,768,000
Income from operations	$ 3,128,000*
*Before special items

In addition, assume that Anheuser-Busch InBev sold 34,000 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 $17,300.

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

Answer 1

		per unit
Sales	$4,896,000	34000
Less: Variable cost
Cost of goods sold (1224000*75%)	$918,000
Selling, general and administration (544000*50%)	272,000
Contribution Margin	3,706,000	109
Fixed cost
Cost of goods sold (1224000*25%)	$306,000
Selling, general and administration (544000*50%)	272,000
Total fixed cost	578,000
Income from operations	3,128,000
ans a
Break even
Fixed cost/CM per unit	5303	barrel
578000/109
ans b
Break even
Fixed cost/CM per unit	5461	barrel
(578000+17300)/109
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