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Break-Even Sales Molson-Coors Brewing Company (TAP) reported the following operating information for a recent year (in...

Break-Even Sales

Molson-Coors Brewing Company (TAP) reported the following operating information for a recent year (in millions):

Sales	$3,568
Cost of goods sold	(2,164)
Gross profit	$1,404
Marketing, general, and admin. expenses	(1,052)
Operating income	$352

*Before special items

Assume that Molson-Coors sold 120 million barrels of beer during the year, variable costs were 70% of the cost of goods sold and 40% of marketing, general, and administrative expenses, and that the remaining costs are fixed. For the following year, assume that Molson-Coors 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 $100 million.

Round intermediate calculations to the nearest cent and the final answers to the nearest whole barrel. (Do not round to the nearest million.)

a. Compute the break-even sales (barrels) for the current year.
______barrels

b. Compute the anticipated break-even sales (barrels) for the following year.
______barrels

Expert Solution

Variable costs = 70% of the cost of goods sold and 40% of marketing, general, and administrative expenses.

= ($2,164 * 70%) + ($1,052 * 40%)

= $1,514.8 + $420.8

= $1,935.6

Fixed costs = 30% of the cost of goods sold and 60% of marketing, general, and administrative expenses.

= ($2,164*30%) + ($1,052*60%)

= $649.2 + $631.2

= $1,280.4

a.

Contribution margin per barrel for the current year = (sales - variable costs) / Number of barrels

= ($3,568 - $1,935.6) / 120

= $13.60

Breakeven sales = Fixed costs / Contribution margin per barrel

= $1,280.4 / 13.60

= 94 million barrels

---------------------------------------------------------------------

Fixed costs next year = $1,280.4 + $100 = $1,380.4

Contribution margin per barrel for the current year = (sales - variable costs) / Number of barrels

= ($3,568 - $1,935.6) / 120

= $13.60

Breakeven sales = Fixed costs / Contribution margin per barrel

= $1,380.4 / $13.60

= 101.5 million barrels

ekkarill92 answered 2 years ago

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