Business 0450 · IGCSE · Costs, scale of production and break-even analysis
Costs, scale of production and break-even analysis — practice question
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.
(a)[2]
Identify two reasons a business may provide training for its employees.
(b)[2]
Using Fig. 1.1, Calculate these values:
Break-even output:
Break-even revenue:
(c)[4]
Outline two possible effects on FBW’s break-even chart if the prices of its products rise.
(d)[6]
Explain two advantages to FBW of employing full-time workers.
(e)[6]
Do you think job production is the best production method for a small business? 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: “To implement a new process/new equipment” …