Deck 10: Costs and Break-Even Analysis

Question 1

Which of the following costs would be a fixed cost for Shaun, a knitwear manufacturer?

A) Purchasing wool
B) Labour cost: knitting machine operators
C) Factory rent
D) Labels and packaging

Answer 1

C

Question 2

Which of the following definitions of break-even point is correct?

A) The break-even point is where total revenue equals total fixed costs plus variable costs.
B) The break-even point is where total sales revenue equals total contribution.
C) The break-even point is where total fixed costs equals total variable costs.
D) The break-even point is where total revenue equals total fixed costs less variable costs.

Answer 2

A

Question 3

Toby is arranging for a rock concert to be held in the students union. The use of the hall will be free but security costs of £100 will have to be met. The cost of the main band will be £2,500 and the supporting band will cost £150. Tickets will be priced at £11 each. What is the break-even point for this event?

A) 227 tickets
B) 236 tickets
C) 241 tickets
D) 250 tickets

Answer 3

D

Question 4

Toby is arranging for a rock concert to be held in the students union. The use of the hall will be free but security costs of £100 will have to be met. The cost of the main band will be £2,500 and the supporting band will cost £150. Tickets will be priced at £11 each. If Toby sells 500 tickets as he anticipates, what profit will this event make?

A) £2,750
B) £5,500
C) £2,850
D) £2,900

Question 5

Gaby is planning to produce and sell baseball hats for Toby's concert. She expects to produce and sell 300 at a selling price of £8 each. Her break-even point is 213 hats. What is her margin of safety, as a percentage?

A) 87%
B) 23%
C) 29%
D) 41%

Question 6

Gaby is planning to produce and sell baseball hats for Toby's concert. She expects to produce and sell 300 at a selling price of £8 each. Her breakeven point is 213 hats. To produce the hat, the following costs will be incurred:
Fabric: £3 per hat
Labour costs/hour: £8 per hour
Rent of premises: £460 per annum
Insurance: £180 per annum
Each hat will take a carpenter 15 minutes to make. Which of the following statements is true?

A) The variable cost per unit will be £5 and fixed costs will be £640.
B) The variable cost per unit will be £11 and fixed costs will be £640.
C) The variable cost per unit will be £5 and fixed costs will be £460.
D) The variable cost per unit will be £11 and fixed costs will be £460.

Question 7

Which of the following most accurately describes a fixed cost?

A) A fixed cost is not affected by inflation.
B) A fixed cost remains the same from year to year.
C) A fixed cost remains the same, regardless of the level of output.
D) A fixed cost involves the purchase of non-current assets.

Question 8

If the contribution per unit is £15 and the breakeven point is 60,000 units. Which of the following statements could NOT be true?

A) The selling price per unit is £55 and the variable cost per unit is £40.
B) The fixed costs are £900,000.
C) To make a profit of £300,000, then 80,000 units would have to be sold.
D) To make a profit of £500,000, then 100,000 units would have to be sold.

Question 9

Which of the following is the most secure margin of safety for a business to have?

A) A margin of safety of 300 units and a percentage margin of safety of 20%
B) A margin of safety of 3,000 units and a percentage margin of safety of 30%
C) A margin of safety of 300 units and a percentage margin of safety of 35%
D) A margin of safety of 3,000 units and a percentage margin of safety of 25%.

Question 10

Lucy expects to produce and sell 9,000 units at £20 each. Each unit will cost her £8 a unit to produce and fixed costs will be £50,000 per annum. What is the break-even point in units?

A) 4,167
B) 6,250
C) 2,500
D) 5,556