Answer:
a. Compute the break-even number of barrels for the current year.
b. Compute the anticipated break-even number of barrels for the following year.
Explanation:
total sales = $5,088,000
units sold = 53,000 barrels
price per barrel = $96 per barrel
total variable costs = 70% of COGS + 50% of S&A costs = (70% x $1,272,000) + (50% x $636,000) = $890,400 + $318,000 = $1,208,400
variable cost per unit = $1,208,400 / 53,000 barrels = $22.80
total fix costs = total costs - variable costs = $1,908,000 - $1,208,400 = $699,600
contribution margin = sales price - variable cost per unit = $96 - $22.80 = $73.20
current break even point in units = total fixed costs / contribution margin = $699,600 / $73.20 = 9,557.38 ≈ 9,558 units
next year's fixed costs = $699,600 + $19,100 = $718,700
next year's break even point = $718,700 / $73.20 = 9,818.31 ≈ 9,819 units
