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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

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

Break-even sales

Anheuser-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.

  1. 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
  2. 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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