Business 7115 · O Level · Costs, scale of production and break-even analysis
Costs, scale of production and break-even analysis — practice question
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): 200 000
Fixed costs per month: $500 00
Variable cost per unit: $25
(a)[2]
Define what is meant by ‘average cost’.
(b)[2]
Calculate total variable cost per month. Show your working.
(c)[4]
Outline two external costs MHL might create while making its products.
(d)[6]
Explain two opportunities of globalisation for MHL.
(e)[6]
Explain two methods of communication a business could use when communicating with its suppliers. Which is likely to be the best method 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: “Overall cost divided by overall output” …