Costs, scale of production and break-even analysis

Autovision is a business in the private sector that is based in Europe. It produces specialist glass for cars and enjoys economies of scale. Quality assurance matters to Autovision. In recent years, the Operations Director has installed new technology, altering 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 believes Autovision ought to relocate to Asia.

Feb/March 2016

GXC makes car components in country X from imported raw materials. During this year, GXC has bought new machinery. As a result, 100 employees have been made redundant, which is 30% of the workforce. Several stakeholder groups are unhappy with this decision. GXC operates flow production and gains from economies of scale. It exports the components to car manufacturers in country Y. Country X’s currency has recently appreciated, and GXC’s Managing Director is concerned about this.

Feb/March 2019

Sachin's company makes cricket bats for the mass market. Every two weeks he places an advert in a national newspaper. Since the business began two years ago, demand for the cricket bats has risen quickly. His 30 employees now make 3 million cricket bats a year. Table 1 gives a summary of the costs and selling price. Sachin is struggling to run the business alone. A friend has advised him to delegate some responsibilities, such as marketing and production decisions, to employees.

Feb/March 2019

Identify and explain two ways in which the results from the questions in Appendix 1 could influence Peter’s decisions about the new service.

Feb/March 2019

Calculate the break-even level of output for BW from the data in Appendix 2.

Feb/March 2020

Suliman runs a small website business that sells t-shirts. He works as a sole trader. He is studying data from his current business, with an extract shown in Table 4.1. Suliman plans to open his first shop and must choose an appropriate location. He is also deciding which sales promotion method to use for the new shop.

Feb/March 2024

Gomez runs a small computer repair firm and manages it himself. Table 1 lists some of the costs and prices for his business. Because the market is competitive, Gomez understands that keeping customers loyal and revenue high matters. He also knows that a lower break-even point would improve profits. He believes the most effective way to reduce the break-even point is to increase prices.

May/June 2015

PJK manufactures a selection of luxury sports watches. Every watch is handmade by skilled workers. Quality assurance is important. The Operations Director has been examining costs and prices because he wants to carry out a break-even analysis. Table 1 shows the data. He is planning to invest in new technology to automate some parts of the production process. The Operations Director believes that this is the most effective way to raise profitability. Table 1: Cost and revenue data ($) Price per watch: $100 Variable cost per watch: $50 Annual sales: 6000 Annual fixed costs: $200 000

May/June 2015

GK Hotel is a small hotel located in the city centre. It contains 15 rooms. Most of the guests are tourists. In the previous year, customer numbers decreased because consumer spending patterns changed and competition became stronger. The Marketing manager thinks GK needs to appeal to customers from a range of market segments if the hotel wants to raise its profits. He intends to improve the GK website. He is unsure whether the cost plus pricing method he currently uses ought to be changed.

May/June 2015

Cheung runs a small clothing retail outlet in the city centre that sells fashion wear for children. Because the market is highly competitive, Cheung understands that market research matters. He is concerned about how an increase in shop rent will affect his costs. Cheung commented: ‘I will have to pay this higher rent as it is a good location. I need to increase revenue or reduce costs.’ He sources all his supplies from a wholesaler in a nearby town. He is considering purchasing straight from a clothing manufacturer in another country.

May/June 2017

ASZ is a public limited company. It manufactures a variety of garden tools, including digging forks and wheelbarrows, using production methods that have stayed the same for many years. All of ASZ’s products are sold through a wholesaler. The Marketing Director is thinking about altering the channel of distribution by selling products straight to retailers. To support decision making, the Operations Director has prepared some revenue and cost data (see Table 1). ASZ is also planning to introduce new technology, which will change production methods.

May/June 2018

Identify and explain two legal controls that may affect Peter when recruiting and employing workers.

May/June 2018

Identify and explain four economies of scale that DH may gain when it acquires a competitor. Economy of scale 1: Explanation: Economy of scale 2: Explanation: Economy of scale 3: Explanation: Economy of scale 4: Explanation:

May/June 2018

Y2M is a bus operating company in the public sector. A key aim for it is to break even on every bus route. Most of its rivals operate in the private sector. Y2M wants more customers to travel by bus. The Finance Director has been studying the cost figures in Table 1 because Y2M intends to reconsider its pricing methods. She is concerned that other businesses pay workers a higher wage rate and that some of its drivers may leave. She said: ‘Matching that wage rate would raise variable cost to $2.20 per passenger per journey.’

May/June 2019

Calculate the monthly total cost of making 100 pieces of furniture.

May/June 2019

GHT is a public limited company making steel items such as gates and garage doors. It has a flat organisational structure and a short chain of command. GHT has many stakeholder groups, including 600 employees. The Managing Director is thinking about introducing job rotation to raise employee motivation, and he has also been examining some financial information. An extract appears in Table 3.1.

May/June 2021

CTF is an ethical business. It makes a variety of toys. CTF competes in a competitive market. Over time, technology has altered production at CTF. The Operations Manager is examining break-even information. Table 3.1 shows an extract of the cost and revenue data for product X. After the closure of its local supplier, the Operations Manager is thinking about importing raw materials for product X.

May/June 2021

Make use of the information in Appendix 2:

May/June 2021

CTF is a public limited company. It makes beds by means of batch production. The Operations Director is using break-even analysis to work out the margin of safety for children’s beds. An extract from CTF’s output data is shown in Table 2.1. The Operations Director wants to find out how a rise in inflation could affect CTF. She is aware that there are many environmental pressures to which a manufacturing business could react.

May/June 2022

CHW manufactures electrical goods, including cameras. The business is creating new products. The Managing Director understands that the product life-cycle stage can shape CHW’s promotion decisions. He is studying data for one of its products; an extract is shown in Table 3.1. The business also wants to add flow production to the factory.

May/June 2022

Explain one benefit and one limitation to Yasin of using a break-even chart.

May/June 2022

FBW makes watches through job production. It has 5 full-time production employees. Regular training is given to each worker. In the previous year, FBW sold 600 watches. The Managing Director intends to use break-even analysis to help decide whether product prices should be increased. FBW’s present break-even chart appears in Fig. 1.1. Fig. 1.1 is headed 'Break-even chart for FBW’s watches'. The vertical axis reads 'costs and revenue $' and goes up to 120 000. The horizontal axis reads 'number of watches' and goes up to 800. A horizontal line labelled 'fixed costs' is shown at $20 000. One straight line slopes upwards and is labelled 'total costs'. A steeper straight line slopes upwards and is labelled 'total revenue'. The total revenue line and the total costs line meet at about 500 watches and $60 000.

May/June 2023

FBM is a boat building business. It employs 100 skilled workers. The Operations Director is worried that FBM is holding too much inventory. She is also worried that the business is beginning to suffer diseconomies of scale. The Finance Director has been asked to examine FBM’s cost and output data. An extract is shown in Table 1.1.

May/June 2024

Explain two reasons why it is important for JJ to set business objectives.

May/June 2024

With Appendix 2 and other information, explain two benefits and two limitations for Santhosh from break-even analysis.

May/June 2024

MHL makes tyres for large vehicles and has factories in 6 countries. When it produces its goods, the business generates external costs. Strong communication with MHL’s suppliers is essential. The Managing Director knows that globalisation gives MHL many opportunities. He is examining data for one of MHL’s factories because he wants to cut the average cost of the tyres. An extract from this data is shown in Table 4.1.

May/June 2025

TWH manufactures a variety of toys through batch production. Dylan, the Managing Director at TWH, intends to put money into new technology to bring down average costs. ‘It’s the only way to increase efficiency as I do not know how we can improve employees’ motivation’ he said. Dylan is unsure whether retained profits or a long term loan would be the better source of finance.

Oct/Nov 2015

Identify and explain two advantages that CC workers would gain by joining a trade union.

Oct/Nov 2015

DCP manufactures a range of high-quality industrial paints. It sells directly to 6 large business customers, each based in a different country. DCP charges $0.35 per litre. It competes in a competitive market. The Operations manager has been reviewing DCP's costs in Table 2. He wants to raise profit but does not want to buy cheaper materials.

Oct/Nov 2016

P & P has opted for batch production for the new paint. Identify and explain two factors that may have led to this choice.

Oct/Nov 2016

Calculate the break-even level of output for the house cleaning service from the information in Appendix 1.

Oct/Nov 2016

Identify two fixed costs and two variable costs of BB, then explain why each cost is fixed or variable.

Oct/Nov 2016

FlyAway is an airline company. It operates in the tertiary sector. It sells low-price flights for business customers in country J. Passengers must pay extra for luggage and food during the flight. This is a highly competitive market. The Marketing manager knows that better customer service is important. Bookings and advertising are carried out through FlyAway’s ticket shops and its website. The Marketing manager is unsure whether to shut the ticket shops and rely only on e-commerce.

Oct/Nov 2017

Use the organisation chart shown in Appendix 2. Identify and explain the chain of command for BB and the span of control of Stella.

Oct/Nov 2017

Duckett produces cleaning products, including washing powder, by using a variety of chemicals. The Operations Director intends to move production to either country X or country Y. He explained: ‘Environmental pressures and tighter legal controls on marketing are the main reasons for relocating. Our output is at break-even and we cannot afford to pay our 450 workers the higher minimum wage of $8 per hour. A wide range of stakeholders will be affected.’

Oct/Nov 2018

Identify and explain two roles performed by the Operations manager at GT.

Oct/Nov 2018

Keila runs a thriving small bakery shop. She wants to grow the business and could set up a café that sells cakes and drinks in a busy tourist area. Her main promotional plan is to hand out free samples. She has collected some customer and cost data, as shown in Table 1. Keila used primary market research to obtain some of this information.

Oct/Nov 2019

After spotting a gap in the soft drinks market, Jerome created a low sugar drink. To launch the business and fund working capital, he borrowed $5000 from family and friends. Jerome runs the business as a sole trader. In order to advertise the product, Jerome gave away free samples in the town centre. During the first year, Jerome’s business sold 10 000 units. That figure is 200 units above his break-even output. Jerome is thinking about methods of raising added value.

Oct/Nov 2021

Tom set up ALB 5 years ago, and it makes trainers (sneakers) from sustainable materials like wool. One of ALB’s aims is to safeguard the environment. As part of his research, Tom worked out some costs that he could use for break-even analysis. An extract is shown in Figure 2.1. ALB distributes its products through retailers. Tom believes that a successful entrepreneur must also be a capable manager. Figure 2.1 is a bar chart with these labels and percentages: retailers’ costs 50%, manufacturers’ profit 5%, fixed costs 15%, variable costs 30%. The horizontal axis is labelled percent and runs from 0 to 60.

Oct/Nov 2021

Explain two diseconomies of scale that CC could face as it grows.

Oct/Nov 2022

LCT makes cooking pots. It employs 16 workers. Because it is a small business, LCT advertises through social media. The owner, Carole, understands that a strong brand image matters. She is examining LCT’s break-even chart, which is displayed in Fig. 2.1. Carole is thinking about different ways to reduce LCT’s break-even output level. Fig. 2.1 shows a break-even chart for LCT. The vertical axis is marked ‘costs / revenue ($)’ and the horizontal axis is marked ‘units’. There are three labelled lines: ‘total revenue’, ‘total costs’, and ‘fixed costs’.

Oct/Nov 2023

Explain four ways in which the break-even chart in Appendix 3 could help SSE.

Oct/Nov 2023

BPT makes bicycles in country A using batch production. The Operations Director is drawing up a break-even chart for one of BPT’s bicycles, as shown in Fig. 1.1. The directors are considering ways to reduce BPT’s break-even level of output. BPT brings in 60% of its raw materials and sells its bicycles to 8 countries overseas. The Managing Director wants to find out how a depreciation in country A’s exchange rate and the introduction of import tariffs could affect BPT. Fig. 1.1 is headed: "Partly completed break-even chart for one of BPT’s bicycles". The vertical axis is labelled "costs and revenue $" and runs from 0 to 300 000. The horizontal axis is labelled "output in units" and runs from 0 to 300. There are two straight lines on the chart labelled X and Y. Line X begins at about $50\,000$ when output is 0 and rises steadily. Line Y starts at $0$ at output 0 and rises more steeply than line X.

Oct/Nov 2024