Contribution and break-even: practice

Question 11 mark

A product sells for £18 and has a variable cost of £6. Fixed costs are £36,000. What is the break-even output?

Question 21 mark

Contribution per unit is:

Question 31 mark

A firm breaks even at 3,200 units and expects to sell 5,000. What is its margin of safety?

Question 41 mark

A firm sells at £20 with variable cost £10 and fixed costs £40,000. Variable cost rises to £12. What happens to break-even output?

Question 51 mark

A firm sells 2,500 units at £30. Variable cost is £18 a unit and fixed costs are £24,000. What is its profit?

Question 61 mark

A product sells for £4 and has a variable cost of £4.20. What can be said about its break-even output?

Question 71 mark

On a break-even chart, where is the area of profit?

Question 81 mark

Which is a limitation of break-even analysis?

Question 91 mark

A firm breaks even at 3,000 units. Its price is £15 and variable cost £7. What are its fixed costs?

Question 101 mark

A firm's margin of safety is small. Which is the best interpretation?

Case study 150 marks

Tabletop Press

Tabletop Press designs and publishes board games. It sells each game to shops for £28. Printing, boxing and delivery cost £12 a game. Its fixed costs, including designers' salaries and a small office, are £64,000 a year.

Extract A: Sales forecast

Tabletop expects to sell 5,500 copies of its new game this year. Last year's game sold 3,900 copies, below its forecast of 5,000.

Extract B: An outsourcing offer

A large printer in Poland offers to print, box and deliver each game for £9, if Tabletop orders at least 6,000 games a year. Tabletop would also save £4,000 a year of warehouse rent, because the printer would store the games. Quality problems with an overseas printer delayed a rival's launch by three months last year.

(a) Calculate4 marks

Using the case, calculate Tabletop's break-even output for the new game.

(b) Explain4 marks

Explain what Tabletop's margin of safety for the new game shows.

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(c) Assess10 marks

Assess the usefulness of break-even analysis to Tabletop when planning the new game.

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(d) Assess12 marks

Assess whether Tabletop should raise its price to shops from £28 to £32.

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(e) Evaluate20 marks

Tabletop could outsource printing to the Polish printer or keep its current UK printing. Evaluate these two options and recommend which it should choose to increase its profit.

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