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In: Accounting

Break-Even Sales BeerBev, Inc., reported the following operating information for a recent year: Net sales $11,712,000...

  1. Break-Even Sales

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

    Net sales $11,712,000
    Cost of goods sold $2,928,000
    Selling, general and administration 610,000
    $3,538,000
    Income from operations $ 8,174,000*

    *Before special items

    In addition, assume that BeerBev sold 61,000 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 $31,100.

    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

Solutions

Expert Solution

a)Computation of Break Even number of barrels for the current year
       Variable Cost    = 75% of Cost of Goods Sold + 50% of Selling and adminstrative Expenses
                                       =   (75 % x $2,928,000) + (50% x $610,000)
                                      =   $2,196,000 + $305,000
Variable Cost (VC) =   $2,501,000
                                      Fixed cost(FC) = Total Cost (-) variable Cost
                                                                     =    $3,538,000 (-) $2,501,000
                                                                     =    $1,037,000
                          Variable cost per barrel = Variable Cost / No. of units of Sales
                                                                           =     $2,501,000 / 61,000
                                                                           =   $41
                                 Sale Price per barrel = net Sales / No. of units of Sales
                                                                           =    $11,712,000   /   61,000
                                                                           =   $192
                    Contribution per barrel = Sale Price (-) Variable Cost
                                                                    =     $192 (-) $41
                                                                    = $151
                             Break Even sales   =    Fixed Cost   /   Contribution per Barrel
                                                                =     $1,037,000 / $151
                                                                = 6,867.55 or 6,868 Barrels
B)Computation of the anticipated break-even number of barrels for the next year.
                                 New fixed cost   =   Fixed Cost (+) Increase in Fixed Cost
                                                                  =     $1,037,000 + $31,100
                                                                  =    $1,068,100
                             Break Even sales   =   New Fixed Cost   / Contribution per Barrel
                                                                =     $1,068,100 / $151
                                                                = 7,073.51or 7,074 Barrels

ekkarill92 answered 3 months ago
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