Question

Break-Even Sales

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

Net sales	$7,040,000
Cost of goods sold	$1,760,000
Selling, general and administration	550,000
	$2,310,000
Income from operations	$ 4,730,000*

*Before special items

In addition, assume that BeerBev sold 55,000 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 $21,500.

When computing the cost per unit amounts for the break-even formula, round to two decimal places. If required, round your final answer to one decimal place.

a. Compute the break-even number of barrels for the current year.
barrels

b. Compute the anticipated break-even number of barrels for the following year.
barrels

Answer 1

Selling price per unit	128.00	=7040000/55000
Variable Cost of goods sold per unit	24.00	=(1760000*75%)/55000
Variable Selling, general and administration per unit	5.00	=(550000*50%)/55000
Contribution margin per unit	99.00	=128-24-5
Total fixed expenses	715000	=(1760000*25%)+(550000*50%)
a
Total fixed expenses	715000
Divide by Contribution margin per unit	99.00
Break-even number of barrels	7222.2	barrels
b
Total fixed expenses	736500	=715000+21500
Divide by Contribution margin per unit	99.00
Break-even number of barrels	7439.4	barrels