In addition, assume that BeerBev sold 28,000 barrels of beer during the year. As

Question

In addition, assume that BeerBev sold 28,000 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 $10,900. 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

Explanation / Answer

CURRENT YEAR SALES PRICE PER BARREL: $2688000 / 28000 = $96
CURRENT YEAR VARIABLE COST OF GOODS SOLD PER BARREL: $672000 * 0.75 = $504000 / 28000 = $18
CURRENT YEAR VARIABLE SELLING & ADMIN EXPENSE: $392000 * 0.50 = $196000 / 28000 = $7

CURRENT YEAR CONTRIBUTION MARGIN PER BARREL: $96 - $18 -$7 = $71

CURRENT YEAR FIXED COST OF GOODS SOLD: $672000 - $504000 = $168000
CURRENT YEAR FIXED SELLING & ADMIN EXPENSES: $392000 - $196000 = $196000
TOTAL CURRENT YEAR FIXED COST: $364000

CURRENT YEAR SALES BREAK-EVEN POINT (BARRELS):

= FIXED COST / CONTRIBUTION PER UNIT

= $364000 / $71

= 5127 (ROUNDED)

FOLLOWING YEAR SALES BREAK EVEN POINT (BARRELS):

=($364000 + $10900) / $70

=5356 (ROUNDED)

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