Business 0450 · IGCSE · Costs, scale of production and break-even analysis
Costs, scale of production and break-even analysis — practice question
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’.
(a)[2]
Identify two limitations of break-even analysis.
(b)[2]
Calculate LCT’s profit if it sells 800 units. Show your workings.
(c)[4]
Outline two possible advantages to LCT of having a good brand image.
(d)[6]
Explain two ways LCT might reduce its break-even output level.
(e)[6]
Do you think social media is the best form of advertising for a small business to use? 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: “Assumes all costs can be shown as straight lines” …