Question

Break-Even Sales

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

Sales $5,040,000

Cost of goods sold    $1,260,000

Selling, general and administration 490,000

$1,750,000

Income from operations $ 3,290,000

In addition, assume that BeerBev sold 35,000 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 $16,800.

a. Compute the break-even sales (barrels) for the current year. Round to the nearest whole barrel. _____ barrels

b. Compute the anticipated break-even sales (barrels) for the following year. Round to the nearest whole barrel.

____ barrels

Answer 1

Break-even point (sales-dollar)​​​​​​ = fixed cost / contribution margin

* Contribution margin = Sales - variable cost

FOR CURRENT YEAR :-

* Contribution margin = $5040000 - ($1260000*75% + $490000*50% + $1750000*50%)

= $2975000

* Fixed cost = $1260000*25% + 490000*50% + 1750000*50%

= $1435000

Then,

Break- even point (sales dollar) will be :-

= 1435000 / 2975000 = $0.4823

Break even point (units) = fixed cost / contribution per unit

* Contribution per unit = sales per unit - variable cost per unit.

** Sales per unit = total sales / number of units sold

= $5040000 / 35000 units = $144

** Variable cost per unit = total variable cost / no. Of units sold

=$945000 / 35000 = $27

Then, contribution per unit = $144 - $27 = $117

So, BEP (Units) = $1435000 / 117 = 12264.9 or 12265 units.

FOR FOLLOWING YEAR

Break-even point (sales dollar) = fixed cost / contribution margin

Assuming that all pricing, expenses are same except an increment in fixed cost of $16800.

Then, fixed cost = $1435000 + $16800 = $1451800

BEP (SALES DOLLAR) = $1451800 / $2975000 = $0.488

Break-even point ( units) = fixed cost / contribution per unit

Then,

BEP ( units) = 1451800 / 117 = 12408.5 or 124086 units