Business 7115 · O Level · Costs, scale of production and break-even analysis
Costs, scale of production and break-even analysis — practice question
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.
(a)[2]
What does the term ‘revenue’ mean?
(b)[2]
What does the term ‘variable cost’ mean?
(c)[4]
Using the data in Table 1, construct a break-even chart for Gomez’s business.
(d)[6]
Identify and explain two methods Gomez could use to keep customer loyalty.
(e)[6]
Gomez believes that the best way to lower the break-even point is to raise prices. Do you agree? 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: “Income/money earned by the business from selling goods or services” …