1

1 Identify two limitations of break-even analysis.

Limitation 1: ............................................................................................................................................

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Limitation 2: ............................................................................................................................................

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[Total: 2]

2 FBW manufactures watches using job production. It employs 5 full-time production employees. Each worker
is offered regular training. Last year FBW sold 600 watches. The Managing Director plans to use break-even
analysis to help decide whether to increase the price of its products. FBW’s current break-even chart is shown
below.

Calculate the following values using the chart:

Break-even output: ..................................................................................................................................

..................................................................................................................................................................

Break-even avenue: .................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]
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3 SSG manufactures mobile (cell) phones using batch production. Quality control is important. SSG has 130
employees who all receive on-the-job training. The Marketing Manager is analysing cost and output data for
product X. An extract is shown in the table below. As product X is in the maturity stage of the product life
cycle SSG is considering possible extension strategies.

Extract from SSG’s cost and output data for product X

Rent and other expenses per month $300 000

Variable cost per unit $80

Output per month 12 000

Calculate total variable cost per month. Show your working.

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[Total: 2]

4 Identify two examples of fixed costs.

Example 1: ...............................................................................................................................................

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Example 2: ...............................................................................................................................................

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[Total: 2]
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5 CTF is a public limited company. It manufactures beds using batch production. The Operations Director is
using break-even analysis to calculate the margin of safety for children’s beds. An extract from CTF’s output
data is shown in the table below. The Operations Director wants to know how an increase in inflation might
affect CTF. She knows there are many environmental pressures that a manufacturing business could respond
to.

Extract from CTF’s output data (children’s beds per month)

Break-even output 14 000

Current level of output 18 000

Maximum factory output 25 000

Calculate the margin of safety for CTF’s children’s beds. Show your working.

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[Total: 2]
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6 CHW manufactures electrical products including cameras. The business is developing new products. The
Managing Director knows that the stage of the product life cycle can influence CHW’s marketing decisions
about promotion. He is analysing data for one of its products. An extract is shown in the table below. The
business would also like to introduce flow production into the factory.

Extract from CHW’s data for one type of camera (2021)

Selling price per unit ($) 120

Variable cost per unit ($) 40

Fixed costs ($) 200 000

Margin of safety (units) 500

Outline two ways CHW could increase its margin of safety.

Way 1: ......................................................................................................................................................

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Way 2: ......................................................................................................................................................

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[Total: 4]
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7 CHW manufactures electrical products including cameras. The business is developing new products. The
Managing Director knows that the stage of the product life cycle can influence CHW’s marketing decisions
about promotion. He is analysing data for one of its products. An extract is shown in the table below. The
business would also like to introduce flow production into the factory.

Extract from CHW’s data for one type of camera (2021)

Selling price per unit ($) 120

Variable cost per unit ($) 40

Fixed costs ($) 200 000

Margin of safety (units) 500

Calculate the break-even level of output for 2021. Show your working.

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.................................................................................................................................................................. [2]

[Total: 2]

8 Define ‘total cost’.

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.................................................................................................................................................................. [2]

[Total: 2]
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Identify X and Y.

X: .............................................................................................................................................................

Y: ............................................................................................................................................................. [2]

[Total: 2]

10 Identify two limitations of break-even analysis.

Limitation 1:.............................................................................................................................................

..................................................................................................................................................................

Limitation 2:.............................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]
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11 After identifying a gap in the soft drinks market, Jerome developed a low sugar drink. He borrowed $5000
from family and friends to start-up a business and to provide working capital. Jerome operates as a sole trader.
To promote his product, Jerome handed out free samples in the town centre. In the first year, Jerome’s business
sold 10 000 units. This is 200 units more than his break-even output. Jerome is considering ways to increase
added value.

Outline two ways that break-even information can help Jerome’s business.

Way 1: ......................................................................................................................................................

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Way 2: ......................................................................................................................................................

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.................................................................................................................................................................. [4]

[Total: 4]

12 Define ‘variable costs’.

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[Total: 2]
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13 VDN is a private limited company. One of VDN’s objectives is to be ethical. VDN produces office products
including pens and paperclips. All raw materials are imported. The Managing Director plans to introduce
new machinery to help lower average costs. This will require training for VDN’s 380 employees. The
Managing Director also wants to introduce Kaizen into the factory.

Explain one advantage and one disadvantage to VDN of introducing Kaizen.

Advantage: ...............................................................................................................................................

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Explanation: ............................................................................................................................................

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Disadvantage: ..........................................................................................................................................

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Explanation: ............................................................................................................................................

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.................................................................................................................................................................. [6]

[Total: 6]

14 Calculate the total variable cost for product X.

Cost and revenue data for product X in 2020Fixed costs

Fixed costs $210 000

Variable cost per toy $25

Price per toy $40

Output 18 000

Show your working.

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[Total: 2]

15 Define ‘fixed cost’.

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[Total: 2]

16 CTF is an ethical business. It manufactures a range of toys. CTF operates in a competitive market. Over the
years technology has changed production at CTF. The Operations Manager is analysing break-even information.
An extract of the cost and revenue data for product X is shown in the table. Following the closure of its local
supplier, the Operations Manager is considering importing raw materials for product X.

Cost and revenue data for product X in 2020Fixed costs

Fixed costs $210 000

Variable cost per toy $25

Price per toy $40

Output 18 000

Outline one benefit and one limitation to CTF of using break-even analysis.

Benefit:.....................................................................................................................................................

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Limitation:................................................................................................................................................

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[Total: 4]
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17 Define ‘break-even’.

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[Total: 2]

18 Define ‘average cost’.

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[Total: 2]

19 NWA is a large and profitable airline business. The below table shows the Cost and price data for a typical
NWA flight.

Calculate the break-even number of customers for a typical NWA flight. Show your working.

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[Total: 2]
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20 Table: MLC's Costs and other information

Calculate the average cost of one motorcycle. Show your working.

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[Total: 2]

21 State two economies of scale.

Economy of scale 1:.................................................................................................................................

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Economy of scale 2:.................................................................................................................................

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[Total: 2]
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22 ALB is a large bank. It has 300 branches and 5 000 employees. ALB provides a range of financial services
to its business customers. As it operates in a competitive market, ALB aims to maintain customer loyalty.
Last year ALB’s profit decreased to $3 000m. The Managing Director is analysing ways to reduce ALB’s
costs. She also has to decide how new legal controls over employment issues might affect the business. The
Government plans to improve protection of employees by changing laws on the minimum wage and health
and safety.

Outline two possible ways ALB can try to reduce its costs.

Way 1:.......................................................................................................................................................

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Way 2:.......................................................................................................................................................

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[Total: 4]

23 Define ‘economies of scale’.

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[Total: 2]
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24

Calculate the margin of safety for BW using the information provided.

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[Total: 2]

25

Calculate the break-even level of output for BW using the information provided.

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[Total: 2]
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26

Identify four ways break-even analysis can be useful to a business.

Way 1:.......................................................................................................................................................

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Way 2:.......................................................................................................................................................

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Way 3:.......................................................................................................................................................

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Way 4:.......................................................................................................................................................

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[Total: 4]
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27 NBV is a multinational company. It makes building products such as bricks. Last year NBV’s financial
accounts showed capital employed as $144 billion. NBV has operations in 18 countries and a total 4 workforce
of 400000. NBV experiences some diseconomies of scale. All raw materials are purchased from the countries
it operates in to avoid problems with exchange rates. NBV plans to open a factory in Country B for the first
time.

Identify and explain two diseconomies of scale that NBV might experience.

Diseconomy of scale 1:............................................................................................................................

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Explanation:.............................................................................................................................................

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Diseconomy of scale 2:............................................................................................................................

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Explanation:.............................................................................................................................................

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.................................................................................................................................................................. [6]

[Total: 6]

28 What is meant by ‘total cost’?

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[Total: 2]
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29 (a) What is meant by ‘fixed costs’?

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[Total: 2]

30 What is meant by ‘variable cost’?

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[Total: 2]
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31 GKA is a food retailer. It has 300 shops located in areas where average consumer incomes are low. GKA
sells a limited range of own-label products including breakfast cereal and toothpaste. GKA does no promotion
or market research. The Managing Director said: ‘Last year our market share increased to 5%. Profit increased
by 40%. Keeping costs low means GKA can offer customers quality products at low prices.’ GKA is planning
to open 100 shops in areas with high average consumer incomes.The Managing Director must decide whether
GKA should change its pricing strategy (method) as the business expands.

Identify and explain two ways in which GKA could keep costs low

Way 1:.......................................................................................................................................................

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Explanation:.............................................................................................................................................

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Way 2:.......................................................................................................................................................

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Explanation:.............................................................................................................................................

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[Total: 6]
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32 FlyAway is an airline business. It is in the tertiary sector. It offers low-price flights for business customers
in country J. Customers have to pay extra for luggage and food on the flight. It is a very competitive market.
The Marketing manager knows that improving customer service is important. Bookings and advertising are
done through FlyAway’s ticket shops and its website. The Marketing manager cannot decide whether to
close its ticket shops and use only e-commerce.

Table: Selected information about two of FlyAway’s routes

Identify and explain two ways in which break-even information could help FlyAway.

Way 1:.......................................................................................................................................................

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Explanation:.............................................................................................................................................

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Way 2:.......................................................................................................................................................

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Explanation:.............................................................................................................................................

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[Total: 4]

33 What is meant by ‘economies of scale’?

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[Total: 2]
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34 Identify what will happen to each of the following when a business’s shop rent increases

Variable cost:............................................................................................................................................

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Fixed cost:................................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]
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35 LWM uses batch production to make car tyres in 15 different sizes. Last year LWM sold 60 million tyres
including 40 million tyres of its best-selling size. The Finance Director has been looking at the financial data
shown in the Table. She said: ‘Liquidity is important. I need to do some ratio analysis to measure business
performance. In the previous year our Return on Capital Employed was 33%.’ The directors are worried
about increased competition but they cannot decide on the best way for LWM to respond.

Table: Extract of financial data for 2016 ($m)

Explain two ways LWM might respond to increased competition. Recommend which way LWM should
choose. Justify your answer.

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[Total: 6]
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36 CFE makes high quality steel used in shipbuilding. 40% of its output is exported. CFE’s equipment is old
and often breaks down. CFE plans to downsize (reduce) its workforce and 1200 of its 2100 skilled employees
could be made redundant. The Managing Director blames reduced demand because of recession in some
economies. A trade union spokeswoman said: ‘Where are the opportunities from globalisation? This decision
will affect many stakeholder groups. There must be another way for CFE to reduce costs.’

Do you think that reducing the number of employees is the best way for CFE to reduce costs? Justify your
answer.

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[Total: 6]

37 DCP makes a range of high quality industrial paints. It sells direct to 6 large business customers which are
located in different countries. DCP charges a price of $0.35 per litre. It operates in a competitive market. The
Operations manager has been looking at DCP's costs as shown below. He wants to increase profit but he does
not want to buy cheaper materials.

Output and cost information for DCP per week

(a) Calculate DCP's average cost per litre.

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[Total: 2]

38 What is meant by ‘break even’?

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[Total: 2]

39 Autovision is a private sector business based in Europe. It makes specialist glass for cars and benefits from
economies of scale. Quality assurance is important to Autovision. The Operations Director has introduced
new technology in recent years which has changed the production process. ‘It was expensive to buy, but we
have 20 fewer workers than 3 years ago and can now make many different designs.’ Autovision sells 50%
of its products in Asia. The Operations Director thinks Autovision should relocate to Asia.

Identify and explain two economies of scale from which Autovision could benefit.

Economy of scale 1:.................................................................................................................................

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Explanation: ............................................................................................................................................

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Economy of scale 2:.................................................................................................................................

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Explanation: ............................................................................................................................................

.................................................................................................................................................................. [4]

[Total: 4]
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