IGCSE Cambridge (CIE) Business 2 hours 28 questions

Exam Questions

4.2 Costs, Break-Even

& Production Scale
Different Types of Costs / Economies of Scale / Diseconomies of Scale / Break-even
Charts / Break-Even Calculations / The Limitations of Break-Even Analysis

Easy (19 questions) /49 Scan here to return to the course

or visit savemyexams.com
Medium (5 questions) /26

Hard (4 questions) /48

Total Marks /123

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 1
Easy Questions
1 Define ‘fixed cost’.

(2 marks)

2 Identify four limitations of using break-even analysis.

(4 marks)

Case Study
After identifying a gap in the soft drinks market, Jerome developed a low sugar
drink. He borrowed $5,000 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.

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 2
 (4 marks)

4 Define ‘variable costs’.

(2 marks)

5 Identify two limitations of break-even analysis.

(2 marks)

Case Study
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 the below table.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.

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 3
 (2 marks)

Case Study
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 the below table.
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.

(2 marks)

Case Study
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

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 4
 shown in the below table. 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.

(2 marks)

9 Define ‘revenue’.

(2 marks)

10 Identify two examples of fixed costs.

(2 marks)

11

Case Study
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

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 5
 help decide whether to increase the price of its products. FBW’s current break-
even chart is shown below.

Calculate the following values using FBW's break-even chart:

Break-even output

Break-even revenue

(2 marks)

12

Case Study
Paolo wants to start up a business making cakes. He plans to sell all of his
products to a wholesaler. Paolo knows the packaging for his products will be
important. He has prepared some financial and sales data. An extract from this

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 6
 data is shown in the below table. Paolo is considering using crowdfunding as a
source of finance. He knows the business will also need working capital.

Extract from Paolo’s financial and sales data

Average price per cake $6

Average cost per cake $4

Forecast average number of cake sales per day 50

Calculate the average revenue per day. Show your working.

(2 marks)

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 7
13 (a) Identify two limitations of break-even analysis.

(1 mark)

(b)

Case Study
LCT manufactures cooking pots. It has 16 employees. As a small business LCT
uses social media as its method of advertising. The owner, Carole, knows having
a good brand image is important. She is analysing LCT’s break-even chart. This is
shown in Fig. 2.1. Carole is considering possible ways to lower LCT’s break-even
level of output.

Calculate LCT’s profit if it sells 800 units. Show your working.

Working: ................................................................................

Final answer: ..............................................................................

(2 marks)

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 8
14

Case Study
TBX manufactures high-quality steel which is used to build railways. The method
of production used allows TBX to benefit from economies of scale. The business
holds a high level of inventory including iron ore. The Managing Director knows
business activity could have an impact on the environment and is considering
ways the business can contribute to sustainable development.

Outline two possible economies of scale TBX might benefit from.

(4 marks)

15 Define ‘break-even’.

(2 marks)

16

Case Study
GHT is a public limited company. It produces steel products, including gates and
garage doors. GHT has a flat organisational structure and a short chain of
command. GHT has many stakeholder groups, including 600 employees. The
Managing Director is considering introducing job rotation to improve employee
motivation. He has also been analysing some financial data. An extract is shown
in Table 3.1.

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 9
 Table 3.1: Extract of revenue and cost data for one of GHT’s products (product X)

Units sold in 2020 30,000

Price per unit $100

Variable costs per unit $60

Fixed costs $900,000

Break even output (units) 22,500

Calculate the margin of safety for product X in 2020. Show your working.

(2 marks)

17

Case Study
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 the below table. 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.

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 10
 (4 marks)

18

Case Study
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.

Outline two possible effects on FBW’s break-even chart if the

prices of its products are increased.

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 11
 (4 marks)

19

Case Study
LCT manufactures cooking pots. It has 16 employees. As a small business LCT
uses social media as its method of advertising. The owner, Carole, knows having
a good brand image is important. She is analysing LCT’s break-even chart. This is
shown in Fig. 2.1. Carole is considering possible ways to lower LCT’s break-even
level of output.

Calculate LCT’s profit if it sells 800 units. Show your working.

(2 marks)

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 12
Medium Questions
1 Using the information in Appendix 2, calculate the break-even level of output per month.

Refer to the following insert when answering the question.

(2 marks)

Case Study
LCT manufactures cooking pots. It has 16 employees. As a small business, LCT
uses social media as its method of advertising. The owner, Carole, knows having
a good brand image is important. She is analysing LCT’s break-even chart. This is
shown in Fig. 2.1. Carole is considering possible ways to lower LCT’s break-even
level of output.

Explain two ways LCT might lower its break-even level of output.

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 13
 (6 marks)

3 Explain four ways the break-even chart in Appendix 3 might be helpful to SSE.

Refer to the following insert when answering the question.

(8 marks)

4 Calculate the margin of safety per month for tables.

Refer to the following insert when answering the question

(2 marks)

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 14
5 Explain one benefit and one limitation to Yasin of using a break-even chart.

Refer to the following insert when answering the question.

(8 marks)

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 15
Hard Questions
1 Using Appendix 2 and other information, consider whether PPE should produce only
large items of playground equipment or produce only small items of playground
equipment. Justify your answer using suitable calculations.

Refer to the following insert when answering the question.

(12 marks)

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 16
2 Consider how SSM could benefit from the following three economies of scale.

Purchasing

Financial

Managerial

Which economy of scale is likely to have the greatest effect on SSM? Justify your answer.

Refer to the following insert when answering the question.

(12 marks)

3 Consider the two options outlined in Appendix 2. Which option should Yasin choose?
Justify your answer using appropriate calculations.

Refer to the following insert when answering the question.

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 17
 (12 marks)

4 Using Appendix 2 and other information, consider the two options for the first
performance at the theatre. Which is the best option for Zaara to choose? Justify your
answer using suitable calculations.

Refer to the following insert when answering the question.

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 18
 (12 marks)

© 2024 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 19