E11-12 Break-even sales Obj. 3 Molson-Coors Brewing Company (TAP) reported the f

Question

E11-12 Break-even sales Obj. 3 Molson-Coors Brewing Company (TAP) reported the following operating information for a recent year (in millions): a. 94,147,059 barrels Sales Cost of goods sold Gross profit Marketing, general, and admin.expenses Operating income Before special items 3,568 (2,164) $1,404 (1.052) 352* 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 adminis- trative 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. Rounding to the nearest cent a. Compute the break-even sales (barrels) for the current year b. Compute the anticipated break-even sales (barrels) for the following year.

Explanation / Answer

a. the following table shows the calcualtion of break even barrels for current year.

break even barrels = fixed costs / contribution per barrel.

here,

fixed costs => (100% - 70%) * cost of goods sold + (100- 30%) * marketing, general and administrative expenses.

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

=>649.2 +631.2

=>$1,280.40 million.

contribution per barrel = (sales - variable costs)/ barrels sold

here,

sales = $3,568 million

variable costs =70% of cost of goods sold + 40% of marketing, general and administrative expenses

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

=>$1514.8 +$420.8

=>$1,935.6.million

total contribution = $3,568 - $1,935.6 =>$1,632.4 million.

contribution per barrel = $1,632.4 million / 120 million barrels sold

=>$13.60....(rounded to two decimals)

now,

break even barells = fixed cost / contribution per barrel

=>$1280.40 million / $13.60.

=>94.1470588235 million

=>94,147,059 barrels....(rounded to nearest whole number).

b.anticipated break even for the following year.

next year fixed costs wll be = $1280.40 million +$100 million

=>$1,380.40 million.

contribution per unit = $13.60.....(it will not change price and variable costs are constant)

now,

break even sales (barrels) = $1,380.40 million/ $13.60

=>101.50 million

=>101,500,000. barrels.

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