Business Studies
Break-Even Charts and Decisions
- 1.
A fictional maker sells each item for $10. Variable cost is $6 per item and fixed cost is $1200 per month. Assume constant prices and unit costs, capacity of 600 items per month and that every item produced is sold. On your own axes, construct a monthly break-even chart for output 0 to 600 and money $0 to $6000. Plot total revenue, total cost and fixed cost using output values 0, 300 and 600. Label the break-even point and identify the loss-making and profit-making output regions. Coordinates must use (items per month, dollars per month).
[6 marks] - 2.
An original fictional chart is supplied by coordinates: total revenue is the straight line from (0,0) to (800,9600), and total cost is the straight line from (0,1600) to (800,8000). Coordinates are (monthly units sold, monthly dollars); all output is sold and the lines apply throughout 0-800 units. Reconstruct both lines on labelled axes. Identify fixed cost and the break-even output. At actual sales of 600 units, mark and calculate both the profit and the margin of safety in units. Explain why these last two quantities are shown by different directions of distance on the chart.
[6 marks] - 3.
A fictional shop's original monthly chart has revenue through (0,0) and (400,3200), and total cost through (0,800) and (400,2400). Coordinates are (units sold per month, dollars per month). Rent then raises fixed cost by $400 per month; selling price and variable cost per unit are unchanged. Draw the original chart and add the amended total-cost line. Identify its new intercept, explain whether its slope changes, and calculate old and new break-even outputs. At 350 units sold, calculate old and new margins of safety. Assume all output is sold and both cost models apply up to 400 units.
[6 marks] - 4.
A fictional manufacturer sells indivisible items at $15 each. Its chart originally has revenue from (0,0) to (500,7500) and total cost from (0,1000) to (500,6000). Coordinates are (monthly units sold, monthly dollars). Variable cost rises from $10 to $12 per item while fixed cost stays $1000. Construct the old and amended total-cost lines alongside the revenue line. Explain what happens to the intercept and slope. Calculate the old break-even output, the new continuous intersection and the minimum whole-number sales that avoid a loss. Check the profit or loss at 333 and 334 sales. All output is sold and capacity is 500 units.
[6 marks] - 5.
A fictional workshop's planning sheet extends straight revenue and total-cost lines to 400 units: revenue passes through (0,0) and (400,4000), while total cost passes through (0,1500) and (400,3500). Coordinates are (monthly units sold, monthly dollars). Its existing equipment can produce at most 200 units per month. Construct the planning chart and add a vertical capacity line at 200. Find the plotted break-even output and calculate profit or loss at capacity. Calculate the selling price per unit that would just cover costs at 200 sales if costs stay unchanged. Explain why neither the projected intersection nor the revised price proves the business can achieve break-even. Assume production equals sales in the calculations; no demand forecast is supplied.
[6 marks]