Costs, scale of production and break-even analysis

Gomez manages a small computer repair business. Table 1 sets out some of the business’s costs and prices. Because the market is very competitive, Gomez knows that keeping customer loyalty and revenue high is important. Gomez also realises 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. Skilled workers handmake each watch. Quality assurance is important. The Operations Director has been examining costs and prices because he wants to carry out a break-even analysis. This information appears in Table 1. He plans to invest in new technology to automate parts of the production process. The Operations Director believes this is the best route to improving profitability.

May/June 2015

Identify and explain two legal controls that could influence Peter when he is recruiting and employing staff.

May/June 2018

Y2M is a bus company operating in the public sector. One of its aims is to break even on every bus route. Most of its rivals operate in the private sector. Y2M wants to raise the number of customers who travel by its buses. The Finance Director has been examining some cost data in Table 1. This is because Y2M plans to review how it prices its services. He is concerned that other businesses pay workers a higher wage rate and that some of its drivers might leave. She stated: ‘If the same wage rate were paid, variable cost would rise to $2.20 per passenger per journey.’

May/June 2019

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

May/June 2019

GHT operates as a public limited company. It manufactures steel items such as gates and garage doors. The business uses a flat organisational structure and a short chain of command. GHT has several stakeholder groups, among them 600 employees. The Managing Director is thinking about using job rotation to raise employee motivation. He has also been reviewing some financial data. An extract appears in Table 3.1.

May/June 2021

Use the information in Appendix 2.

May/June 2021

CTF is a public limited company. It manufactures beds through 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 appears in Table 2.1. The Operations Director wants to find out how a rise in inflation could influence CTF. She is aware that a manufacturing business can react to many environmental pressures.

May/June 2022

CHW makes electrical products, including cameras. The business is creating new products. The Managing Director understands that the stage of the product life cycle can shape CHW’s decisions about promotion. He is examining data for one of its products. An extract is shown in Table 3.1. The business also wants to bring flow production into the factory.

May/June 2022

Explain one advantage and one drawback to Yasin of using a break-even chart.

May/June 2022

Explain two distinct ways in which TT could expand.

May/June 2022

FBW makes watches through job production. It employs 5 full-time production workers. Every worker receives regular training. Last year, FBW sold 600 watches. The Managing Director intends to use break-even analysis when deciding whether to raise the prices of its products. FBW’s current break-even chart is shown in Fig. 1.1.

May/June 2023

MHL makes tyres for large vehicles. It operates factories in 6 countries. While producing its products, the business generates external costs. Clear communication with MHL’s suppliers is important. The Managing Director recognises that globalisation creates many opportunities for MHL. She is examining data for one of MHL’s factories because she wants to lower the average cost of the tyres. An extract from these figures is shown in Table 4.1. Table 4.1 Data for one of MHL’s factories Output per month (units): 200000 Fixed costs per month: $50000 Variable cost per unit: $25

May/June 2025

TWH produces a variety of toys through batch production. TWH’s Managing Director, Dylan, intends to invest in new technology in order to cut average costs. ‘It’s the only way to increase efficiency because I do not know how we can improve employees’ motivation’ he said. Dylan is unable to decide whether retained profits or a long term loan would be the better source of finance. Table 1: 2014 figures

Oct/Nov 2015

Identify and explain two benefits that CC workers could gain from trade union membership.

Oct/Nov 2015

DCP produces a variety of high-quality industrial paints. It sells directly to 6 major business customers who are based in different countries. DCP sets a price of $0.35 per litre. It competes in a highly competitive market. The Operations manager has been examining DCP's costs, as shown in Table 2. He wants to raise profit, but he does not wish to purchase cheaper materials.

Oct/Nov 2016

P & P has chosen batch production for the new paint. Identify and explain two factors that may have influenced this decision.

Oct/Nov 2016

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

Oct/Nov 2016

FlyAway operates as an airline company. It belongs to the tertiary sector. For business customers in country J, it provides low-price flights. On board, customers must pay extra for luggage and food. Competition in this market is intense. The Marketing manager understands that better customer service matters. Bookings and advertising are handled through FlyAway’s ticket shops and its website. The Marketing manager is unsure whether the ticket shops should be shut and e-commerce used on its own.

Oct/Nov 2017

Keila runs a profitable small bakery. She wants to grow the business. One possibility is to open a café selling cakes and drinks in a well-known tourist area. Her main promotional plan is to hand out free samples. She has collected customer and cost data in Table 1. Some of the information was gathered through primary market research.

Oct/Nov 2019

Gino runs a fast-food restaurant that serves fried chicken and potato fries. He has 5 full-time chefs and 12 part-time workers who help to serve the food. Communication is important, so Gino holds regular meetings with his part-time employees to keep them updated about any menu changes. It took 3 years for Gino’s business to break-even. He wants to achieve a Return on Capital Employed (ROCE) of $10\%$. Gino is always searching for ways to increase the number of customers. Inflation could be a difficulty for Gino’s business.

Oct/Nov 2020

After spotting a gap in the soft drinks market, Jerome created a low-sugar drink. He borrowed $5000 from family and friends to finance the start-up and to supply working capital. Jerome runs the business as a sole trader. To advertise his product, Jerome gave out free samples in the town centre. During the first year, Jerome’s business sold 10 000 units. This is 200 units above his break-even output. Jerome is thinking about different ways to raise added value.

Oct/Nov 2021

Tom set up ALB 5 years ago and produces trainers (sneakers) from sustainable inputs such as wool. Protecting the environment is one of ALB's aims. During his research, Tom worked out some costs that he could use for break-even analysis; Figure 2.1 shows an extract. ALB sells its products through retailers. Tom believes a successful entrepreneur must also be a good manager.

Oct/Nov 2021

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

Oct/Nov 2022

LCT makes cooking pots and employs 16 people. Being a small firm, LCT advertises through social media. The owner, Carole, understands that a strong brand image matters. She is studying LCT’s break-even chart, which appears in Fig. 2.1. Carole is thinking about ways to reduce LCT’s break-even output level.

Oct/Nov 2023

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

Oct/Nov 2023

SBL is a fast food restaurant that sells 900 chicken burgers every week. It employs 14 workers. The owner, Vicki, gives her employees training, but she does not make use of delegation at present. She is drawing up a break-even chart to work out SBL’s margin of safety. A partly finished break-even chart is shown in Fig. 3.1. Vicki would like to understand how an economic recession could influence her business. Fig. 3.1 shows a break-even chart for SBL. The vertical axis is Costs/revenue $ and the horizontal axis is Output/sales per week (units). Label X indicates the point where the total cost and revenue lines cross (break-even point). Label Y indicates the revenue line close to the top-right of the chart.

Oct/Nov 2025