Anheuser-Busch InBev SA/NV (BUD) reported the following operating information for a recent year:

Sales: $5,248,000
Cost of goods sold: $1,312,000
Selling, general, and administrative expenses: 656,000 (Year 1); 1,968,000 (Year 2)
Operating income: $3,280,000 (Before special items)

In addition, assume that Anheuser-Busch InBev sold 41,000 barrels of beer during the year. Assume that variable costs were 75% of the cost of goods sold and 50% of selling, general, and administrative 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 $19,700.

a. Compute the break-even number of barrels for the current year. Round to the nearest whole barrel.

b. Compute the anticipated break-even number of barrels for the following year. Round to the nearest whole barrel.

1. 6,833 barrels.

2. 7,039 barrels.

Explanation:

Requirement 1

We know,

Break-even number of barrels = Fixed cost ÷ Contribution Margin per unit

Given,

Contribution Margin per unit = Sales price per unit - Variable expense per unit

or, Contribution Margin per unit = (Total sales ÷ Sales volume) - [(75% of the cost of goods sold + 50% of selling, general, and administrative expenses) ÷ 41,000]

or, Contribution Margin per unit = ($5,248,000 ÷ 41,000) - [($1,312,000 × 75%) + (656,000 × 50%) ÷ 41,000]

or, Contribution Margin per unit = $128 - [($984,000 + 328,000) ÷ 41,000]

or, Contribution Margin per unit = $128 - ($1,312,000 ÷ 41,000)

or, Contribution Margin per unit = $128 - $32 = $96

And, Fixed cost = Total cost - Variable expense = (Cost of goods sold + Selling, general, and administrative expenses) - Variable expense

Fixed cost = ($1,312,000 + 656,000) - $1,312,000 = $656,000

Therefore,

Break-even number of barrels = $656,000 ÷ $96 = 6,833 barrels.

Requirement 2

Again,

Break-even number of barrels = Fixed cost ÷ Contribution Margin per unit

Given,

As Anheuser-Busch InBev expects to increase the fixed expenses by $19,700, the new fixed cost = $656,000 (from requirement 1) + $19,700

Fixed cost = $675,700

Given,

Contribution Margin per unit = $96 (From requirement 1)

Therefore,

Break-even number of barrels for the following year = $675,700 ÷ $96

Break-even number of barrels = 7,039 (rounded to nearest number).

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