Page 229 - Cambridge IGCSE Business Studies

16: Costs, scale of production and break-even analysis

Revision checklist Exam practice questions

● The costs of business can be classified into 1 The Operations Manager of Company Y has produced the
fixed costs, variable costs, total costs and following break-even chart for Product X.
average costs and these classifications are The average monthly sales for Product X are 4,200 units.
useful when making cost-based decisions.
a Identify the lines labelled as A and B on the chart
● The average costs of a business will usually
in Figure 16.7. [2]
change as the business grows because of
economies or diseconomies of scale.
b Calculate the percentage difference between the
● Businesses can use break-even charts monthly sales for Product X and the monthly break-
to show the relationship between costs, even sales. [2]
revenue, output and profit and how changes
in costs or revenues might aff ect profits. c Identify and explain two ways of classifying the costs
of producing Product X. [4]

d Identify and explain one benefi t and one limitation
of break-even analysis to the management of
Company Y. [6]

e Company Y’s senior management do not think break-
even analysis is important to the success of the
business. Do you agree? Justify your answer. [6]

Costs/Revenue
A
227

B

Fixed costs

4,000 Output/Sales
Figure 16.7 Breakeven chart for Product X