Question

Molson-Coors Brewing Company (TAP) reported the following operating information for a recent year (in millions):

Sales $3,568
Cost of goods sold (2,164)
Gross profit $1,404
Marketing, general, and admin. expenses (1,052)
Operating income $352

*Before special items

Assume that Molson-Coors sold 120 million barrels of beer during the year, Costs that vary in total dollar amount as the level of activity changes.variable costs were 70% of the cost of goods sold and 40% of marketing, general, and administrative expenses, and that the remaining costs are fixed. For the following year, assume that Molson-Coors expects pricing, variable costs per barrel, and Costs that tend to remain the same in amount, regardless of variations in the level of activity.fixed costs to remain constant, except that new distribution and general office facilities are expected to increase fixed costs by $100 million.

Round intermediate calculations to the nearest cent and the final answers to the nearest whole barrel. (Do not round to the nearest million.)

a. Compute the break-even sales (barrels) for the current year.
barrels

b. Compute the anticipated break-even sales (barrels) for the following year.
barrels

Answer 1

The break-even sales in barrels for the current year are 20,617,647 barrels, and for the following year, with increased fixed costs, the break-even point is 27,970,588 barrels.

Step-by-step explanation:

To compute the break-even sales in barrels for the current year, we first need to calculate the company's variable costs and fixed costs. Variable costs for cost of goods sold (COGS) are 70% of $2,164 million, which amounts to $1,514.8 million. Variable costs for marketing, general, and administrative expenses are 40% of $1,052 million, which is $420.8 million. Therefore, total variable costs are $1,514.8 million + $420.8 million = $1,935.6 million. Total fixed costs are the remainder from the total costs, which is $2,164 million + $1,052 million - $1,935.6 million = $280.4 million.

To calculate the break-even point, we divide the fixed costs by the contribution margin per unit. The contribution margin per unit is the sales price per barrel minus variable cost per barrel. Assuming the variable cost and selling price per barrel remain constant, and knowing they sold 120 million barrels, we can find variable cost per barrel by $1,935.6 million / 120 million barrels = $16.13 per barrel. If the selling price is $3,568 million / 120 million barrels = $29.73 per barrel, the contribution margin per unit is $29.73 - $16.13 = $13.60 per barrel.

The break-even sales in barrels for the current year is therefore $280.4 million / $13.60 = 20,617,647 barrels. For the following year, fixed costs increase by $100 million, so new fixed costs are $280.4 million + $100 million = $380.4 million. The break-even sales in barrels for the following year are $380.4 million / $13.60 = 27,970,588 barrels.

Answer 2

1)Break Even Sales Volume in Units=105.789067 million barrels

2))Break Even Sales Volume in Units=114.0512569 million barrels

Step-by-step explanation:

Break Even Sales Volume in Units= Fixed Costs/ Contribution Margin per unit

Given

Molson-Coors

All figures in millions

Sales $3,568

Cost of goods sold (2,164)

Gross profit $1,404

Marketing, general, and admin. expenses (1,052)

Operating income $352

Molson-Coors

All figures in millions

Sales $3,568

Variable Cost of goods sold (2,164)*70%= (15,14.8)

Variable Marketing, general, and admin. expenses (1,052) *40%= (600.8)

Contribution Margin $1,452.4

Fixed Cost of Goods Sold 649.2

Marketing, general, and admin. expenses (1,052) *60%= $ 631.2

Operating income $172

Break Even Sales Volume in Units= Fixed Costs/ Contribution Margin per unit

When Fixed Costs are not increased in the current year.

Break Even Sales Volume in Units= 649.2+631.2/12.1033 (millions)

1)Break Even Sales Volume in Units=105.789067 millions barrels

When Fixed Costs are increased in the following year.

Break Even Sales Volume in Units= 649.2+631.2+ 100/12.1033 (milions)

2))Break Even Sales Volume in Units=114.0512569 millions barrels