Question

Break-Even Sales

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

Sales	$5,632,000 __________
Cost of goods sold	$1,408,000
Selling, general and administration	528,000 _______________
	$1,936,000 ________________
Income from operations	$ 3,696,000*
*Before special items

In addition, assume that Anheuser-Busch InBev sold 44,000 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 $18,500.

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

Anheuser-Busch InBev Companies Inc

1. Computation of the break-even number of barrels for the current year:

Break-even number of barrels = fixed cost/contribution margin per barrel

Contribution margin per barrel = sales price per barrel – variable cost per barrel

Sales price per barrel = $128 ($5,632,000/44,000)

Variable cost-

Cost of goods sold per barrel = $24

Selling and admin. Cost per barrel = $6

Total variable cost per barrel = $30

Contribution margin per barrel = $128 - $30 = $98

Fixed cost –

25% of cost of goods sold = 25% of $1,408,000 = $352,000

50% of selling and admn = 50% of 528,000 = $264,000

Total fixed cost = $352,000 + $264,000 = $616,000

Break-even number of barrels = $616,000/$98 = 6,286 barrels (rounded)

Variable cost –

75% of Cost of goods sold is variable = 75% of $1,408,000 = $1,056,000

Variable cost of goods sold per barrel = $1,056,000/44,000 = $24 per barrel

50% of selling and administration =50% of $528,000 = $264,000

Variable selling and administration cost per barrel = $264,000/44,000 = $6

1. Computation of the anticipated break-even number of barrels for the following year, assuming an increase of $18,500 in fixed cost:

Break-even number of barrels = fixed cost/contribution margin per barrel

Contribution margin per barrel = sales price per barrel – variable cost per barrel

Sales price per barrel = $128 ($5,632,000/44,000)

Variable cost-

Cost of goods sold per barrel = $24

Selling and admin Cost per barrel = $6

Total variable cost per barrel = $30

Contribution margin per barrel = $128 - $30 = $98

Fixed cost –

25% of cost of goods sold = 25% of $1,408,000 = $352,000

50% of selling and admin = 50% of 528,000 = $264,000

Add: increase in new distribution expenses = $18,500

Total fixed cost = $634,500

Break-even number of barrels = $634,500/$98 = 6,474 barrels