Break-Even Analysis Quiz
Topic 5.4.5 - The Survival Calculator
15
Questions
5
Section A (AO1)
Definitions
5
Section B (AO2)
Calculations
5
Section C (AO3/AO4)
Strategic Analysis
Q1Section AAO1
2
marks
Define 'Break-Even Point'.
Q2Section AAO1
2
marks
Define 'Margin of Safety'.
Q3Section AAO1
2
marks
What happens to the Break-Even Point if the Selling Price increases (assuming all other factors remain constant)?
Q4Section AAO1
2
marks
Define 'Contribution per Unit'.
Q5Section AAO1
2
marks
State the formula for calculating Break-Even Output.
Q6Section BAO2
3
marks
A business has Fixed Costs of $10,000, a Selling Price of $50 per unit, and Variable Costs of $30 per unit. Calculate the Contribution per Unit.
Q7Section BAO2
3
marks
Using the same data from Question 6 (FC: $10,000, SP: $50, VC: $30), calculate the Break-Even Output in units.
Q8Section BAO2
4
marks
The business from Questions 6-7 actually sells 600 units. Calculate: (a) The Margin of Safety in units (2 marks), and (b) The Total Profit (2 marks).
Q9Section BAO2
4
marks
A café has monthly Fixed Costs of $8,000. It sells coffee at $4.50 per cup with Variable Costs of $1.50 per cup. The café currently sells 3,000 cups per month. Calculate: (a) The Break-Even Output (2 marks), and (b) The Margin of Safety as a percentage (2 marks).
Q10Section BAO2
4
marks
A business is considering reducing its Selling Price from $80 to $70 to increase sales from 500 to 650 units. Variable Costs are $40 per unit and Fixed Costs are $15,000. Calculate the change in Total Profit. Should the business reduce the price? (2 marks for calculation, 2 marks for justified decision)
Q11Section CAO3
6
marks
Analyse TWO limitations of the Break-Even model for a manufacturing business.
Q12Section CAO3
6
marks
A startup has a Break-Even Output of 1,200 units with actual sales of 1,300 units (Margin of Safety: 100 units). The owner is concerned this margin is too small. Analyse TWO ways the business could increase its Margin of Safety.
Q13Section CAO3
8
marks
A restaurant has Fixed Costs of $120,000, a Selling Price of $25 per meal, and Variable Costs of $10 per meal. The owner is considering investing $30,000 in new equipment that would increase Fixed Costs to $150,000 but reduce Variable Costs to $7 per meal. Analyse whether this investment would improve the restaurant's financial position. (You may assume current sales are 10,000 meals per year)
Q14Section CAO3/AO4
10
marks
Evaluate the usefulness of Break-Even Analysis as a decision-making tool for a business launching a new product in a competitive market.
Q15Section CAO4
12
marks
A family-owned bakery currently sells 2,000 loaves per week at $3.50 each. Fixed Costs are $2,100 per week, and Variable Costs are $1.50 per loaf. A supermarket chain has offered to buy 1,500 loaves per week at a discounted price of $2.50 per loaf. The bakery has capacity to produce 4,000 loaves per week. Using the AJIM framework, recommend whether the bakery should accept this offer.
Cambridge Assessment Objectives: AO1 (Knowledge) • AO2 (Application) • AO3 (Analysis) • AO4 (Evaluation)
Break-Even Analysis is a fundamental tool for understanding business survival thresholds and risk assessment.
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