Chapter 21, Problem 21.12EX

### Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

Chapter
Section

### Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

# Break-even salesAnheuser-Busch InBev Companies, Inc., reported the following operating information for a recent year (in millions): Net sales $47,063 Cost of goods sold$18,756 Selling, general and administration 12,999 $31,755 Income from operations$15,308* *Before special items   In addition, assume that Anheuser-Busch InBev sold 400 million 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 $300 million. a. Compute the break-even number of barrels for the current year. Note: For the selling price per barrel and variable costs per barrel, round to the nearest cent. Also present the break-even units in millions of barrels b. Compute the anticipated break-even number of barrels for the following year. a. To determine Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows: Break-evenpointinSales(units) =FixedCostsContributionMarginperunit To compute: the break-even number of barrels for the current year. Explanation Compute the break-even point number of barrels for the current year. Fixed cost =$11,188.5million (refer Table 2)

Contribution margin per unit =$66.24 per million barrel (1) Break-evenpointinSales(units) =FixedCostsContributionMarginperunit=$11,188.5million$66.24permillionbarrel=168.9millionbarrels Working notes: Determine the total variable cost.  Particulars Total cost (A) Variable cost percentage (B) Variable cost (A×B) Cost of Goods sold$18,756.0 75% $14,067.0 Selling, general, administration$12,999.0 50% $6,499.5 Table (1) Determine the total fixed cost.  Particulars Total cost (A) Variable cost (B) Fixed cost (A-B) Cost of Goods sold$18,756.0 $14,067.0$4,689.0 Selling, general, administration $12,999.0$6,499.5 $6,499.5 Total fixed cost$11,188.5

Table (2)

Determine the selling price per unit and the variable cost per unit.

 Particulars Total cost (A) Number of Barrels (B) Cost per unit (A÷B) Net sales \$47,063

b.

To determine

To compute: the anticipated break-even number of barrels for the following year.

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