Business 0450 · IGCSE · Costs, scale of production and break-even analysis
Costs, scale of production and break-even analysis — practice question
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
(a)[2]
What does the term ‘quality assurance’ mean?
(b)[2]
Identify two ways in which break-even analysis may be useful to PJK.
(c)[4]
Using the information in Table 1, draw a break-even chart for PJK on Figure 1.
(d)[6]
Identify and explain two advantages to PJK of employing skilled workers.
(e)[6]
Do you think that investing in new technology is the best way to improve profitability at PJK? Justify your answer.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Checking that quality standards are maintained throughout the production process” …