Break-Even Sales BeerBev, Inc., reported the following operating information for

Question

Break-Even Sales BeerBev, Inc., reported the following operating information for a recent year (in millions) Sales Cost of goods sold Gross profit Marketing, general, and admin. expenses Income from operations $3,456 $864 $2,592 486 $2,106 Assume that BeerBev sold 27 million barrels of beer during the year, that variable costs were 75% of the cost of goods sold and 50% of marketing, general and administration expenses, and 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 $13.77 million a. Compute the break-even sales (in barrels) for the current year. Round your answer to two decimal places. Enter your answers in millions. million barrels b. Compute the anticipated break-even sales (in barrels) for the following year. Round your answer to two decimal places. Enter your answers in millions. xmillion barrels

Explanation / Answer

a. Break-even sales (in barrels) = Total fixed costs/Contribution per unit = $459/$95 = 4.83 million barrels

Contribution per unit = $2565/27 = $95

b. Anticipated break-even sales (in barrels) = Total fixed costs/Contribution per unit = $472.77/$95 = 4.98million barrels

Total fixed costs = $459 + $13.77 = $472.77 million

$ in millions Sales 3456 Variable costs: Cost of goods sold ($864 x 75%) 648 Marketing, general, and admin. Expenses ($486 x 50%) 243 Total variable costs 891 Contribution margin 2565 Fixed costs Cost of goods sold ($864 x 25%) 216 Marketing, general, and admin. Expenses ($486 x 50%) 243 Total fixed costs 459 Income from operations 2106

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