Question

Break-Even Sales

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

Sales	$6,080,000
Cost of goods sold	$1,520,000
Selling, general and administration	684,000
	$2,204,000
Income from operations	$ 3,876,000*
*Before special items

In addition, assume that Anheuser-Busch InBev sold 38,000 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 $21,700.

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

(a) Selling price per barrel = $6,080,000 / 38000 = 160 per barrels

Variable cost per barrel = [($1,520,000 * 0.75) + (684,000 * 0.50) ] / 38000

= $39 per barrel

Fixed Cost = [($1,520,000 * 0.25) + (684,000 * 0.50) = $722000

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

= $722000 / ($160 - $39)

= 5967 Barrels

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

= ($722000 + $21700) / ($160 - $39)

= 6146 Barrels