CIE IGCSE Topical Past Paper 1

4.2 Costs, scale of production and break-even analysis

0450/12/M/J/2025

MHL manufactures tyres for large vehicles. It has factories in 6 countries. The business creates external costs when producing its products. Good communication with MHL’s suppliers is important. The Managing Director knows globalisation provides many opportunities for MHL. She is reviewing data for one of MHL’s factories as she wants to reduce the average cost of the tyres. An extract
from this data 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	$500 000
Variable cost per unit	$25

(a) Define ‘average cost’.[2]

(b) Calculate total variable cost per month. Show your working. [2]
Working:

0450/11/M/J/2025

PKN manufactures glass. Contributing to sustainable development is important to the business. PKN has factories in 30 countries. It has 27 000 employees. The Managing Director knows PKN has benefited from globalisation. She plans to expand the business using external growth. Retained profit is one source of finance a business could use to fund expansion. Some of PKN’s directors are concerned about possible diseconomies of scale as the business grows.

(d) Explain two diseconomies of scale which might affect PKN as it grows. [6]
Diseconomy 1:
Explanation:

Diseconomy 2:
Explanation:

0450/11/M/J/2022

CTF is a public limited company. It manufactures beds using batch production. The Operations Director is using break-even analysis to calculate the margin of safety for children’s beds. An extract from CTF’s output data is shown in Table 2.1. The Operations Director wants to know how an increase in inflation might affect CTF. She knows there are many environmental pressures that a manufacturing business could respond to.

Table 2.1 Extract from CTF’s output data (children’s beds per month)
Break-even output	14 000
Current level of output	18 000
Maximum factory output	25 000

(b) Calculate the margin of safety for CTF’s children’s beds. Show your working. [2]

0450/13/O/N/2024

BPT manufactures bicycles in country A. It uses batch production. The Operations Director is preparing a break-even chart for one of BPT’s bicycles, as shown in Fig. 1.1. The directors are considering ways to lower BPT’s break-even level of output. BPT imports 60% of its raw materials and exports its bicycles to 8 countries. The Managing Director wants to know how a depreciation in country A’s exchange rate and the introduction of import tariffs might affect BPT.

(a) Identify the lines labelled X and Y in Fig. 1.1. [2]
X:
Y:

(c) Outline two ways BPT could lower its break-even level of output.[4]
Way 1:
Way 2:

0450/11/M/J/2022

Table 2.1 Extract from CTF’s output data (children’s beds per month)
Break-even output	14 000
Current level of output	18 000
Maximum factory output	25 000

(b) Calculate the margin of safety for CTF’s children’s beds. Show your working. [2]

0450/12/M/J/2024

FBM is a boat building business. It has 100 skilled employees. The Operations Director is concerned that FBM holds a high level of inventory. She is also concerned that the business is starting to experience diseconomies of scale. The Finance Director has been asked to analyse FBM’s cost and output data. An extract is shown in Table 1.1.

Extract from FBM’s cost and output data
Variable costs per unit	$5000
Fixed costs per year	$600 000
Number of boats made each year	300

Table 1.1

(a) Define ‘diseconomies of scale’. [2]

(b) Identify two ways a business can use cost data to help make decisions. [2]
Way 1:
Way 2:

(c) Identify four fixed costs a business might have. [4]
Fixed cost 1:
Fixed cost 2:
Fixed cost 3:
Fixed cost 4:

0450/11/M/J/2022

Table 2.1 Extract from CTF’s output data (children’s beds per month)
Break-even output	14 000
Current level of output	18 000
Maximum factory output	25 000

(b) Calculate the margin of safety for CTF’s children’s beds. Show your working. [2]

0450/12/F/M/2024

Suliman owns a small business which sells t-shirts on its website. He operates as a sole trader. Suliman is analysing data for his existing business. An extract from this data is shown in Table 4.1. Suliman wants to open his first shop and needs to decide on a suitable location. He is considering which type of sales promotion to use for the new shop.

Extract from Suliman’s data for his existing business
Break-even output	500 t-shirts
Current sales	550 t-shirts
Selling price per t-shirt	$3.99
Variable cost per t-shirt	$1.99

Table 4.1

(a) Define ‘break-even output’.. [2]

(b) Calculate the margin of safety. Show your working. [2]
Working:
Final answer:

0450/12/O/N/2023

Paolo wants to start up a business making cakes. He plans to sell all of his products to a wholesaler. Paolo knows the packaging for his products will be important. He has prepared some financial and sales data. An extract from this data is shown in Table 1.1. Paolo is considering using crowdfunding as a source of finance. He knows the business will also need working capital.

Extract from Paolo’s financial and sales data
Average price per cake	$6
Average cost per cake	$4
Forecast average number of cake sales per day	50

Table 1.1

(b) Calculate the average revenue per day. Show your working. [2]