Question

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

Sales	$5,440,000
Cost of goods sold	$1,360,000
Selling, general and administration	408,000
	$1,768,000
Income from operations	$ 3,672,000

In addition, assume that BeerBev 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 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 $16,300.

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

(a) Break-even sales (barrels) for the current year = 4,387 Barrels

Selling price per barrel = $5440000 / 34,000 = $160 per barrels

Variable cost per barrel = [(13,60,000 * 0.75) + (4,08,000 * 0.50) ] / 34000

                                      = 1224000 / 34000

= $36 per barrel

Fixed Cost = 340000 + 204000 = 544000

Break-even sales (barrels) for the current year = Fixed Costs / Contribution per barrel

= $544000 / ($160 - $36 )

= $544000 / $124

= 4,387 Barrels

(b) Anticipated break-even sales (barrels) for the following year =4519 Barrels

= ($544000 + $16300) / ($160 - $36 )

= $560300 / $124

= 4518.55 Barrels or

= 4519 Barrels (Rounded)