Question

Break-Even Sales

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

Sales $5,376,000

Cost of goods sold $1,344,000

Selling, general and administration 504,000

$1,848,000

Income from operations $ 3,528,000*

*Before special items

In addition, assume that Anheuser-Busch InBev sold 42,000 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 $17,600.

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

Break even number of barrels = fixed costs/Contribution margin per unit

Requirement a

Contribution margin per unit:

Sales $ 5,376,000

Less: Variable costs:

cost of goods sold = 1076,000

(1344,000*75%)

Selling, general and administration = 252,000

Expenses (504,000*50%)

Contribution margin $4,116,000

Number of barrels sold 42,000 barrels

Contribution per barrel $4,116,000/42,000 =$98 per barrel

Fixed costs:

Cost of goods sold 336,000

(1,344,000 *25%)

Selling, general and

administration expenses 252,000

(504,000*50%)

Total fixed costs 588,000

Break even number of barrels $588,000/$98 = 6,000 barrels

Requirement b

Anticipated fixed costs 588,000 + 17,600 = 605,600

Anticipated break even number of barrels

=605,600/98 = 6,180 barrels