OCR GCSE Business Studies
Topic questions Microeconomics Contribution & break-even analysis
8 questions · 75 marks · about 1.5 hours
Financial data for a sole trader who makes guitars is shown below.
• Fixed costs = £9435 per year
• Variable costs = £35 per guitar
• Selling price = £120 per guitar
How many guitars does the sole trader need to make and sell in a year to cover total costs?
A 61
B 79
C 111
D 273
Ariel and Umi are business partners. They have some important decisions to make about their business. They have produced cost and revenue data for the business’ first four years of trading.
| Year 1 | Year 2 | Year 3 | Year 4 | |
| Raw material costs | £25 000 | £28 000 | £31 000 | £35 000 |
| Other costs | £12 000 | £15 000 | £18 000 | £20 000 |
| Revenue | £12 000 | £24 000 | £32 000 | £40 000 |
This data is useful to Ariel and Umi when making business decisions because it shows that the business:
A gained market share in all four years of trading
B has not reached its break-even quantity in any of its first four years
C made a small net profit in Year 3 and a larger net profit in Year 4
D needs an overdraft
A manufacturer that makes and sells more than its break-even quantity will:
A have insufficient revenue to cover costs
B make a profit
C need to improve its quality control
D require an overdraft
Text 2
The Sea View Hotel
The Sea View Hotel is a profitable hotel located near the coast. Anika and Charlie own the hotel in a business partnership. They are now considering opening a second hotel in a town further along the coast. It would cost them £1.5 million to buy the property and £0.5 million for redecoration.
To fund the £2 million expansion, the partners are considering getting a bank loan or accepting a new partner into the business. The partnership already has one bank loan but has worked out it can afford a second loan as long as the cost of borrowing does not rise too much.
If Anika and Charlie decide to take on a new partner, they would like to ask Finley, a friend of Anika’s who has just returned to the UK from travelling around the world. Finley is currently unemployed but is a keen photographer and environmental campaigner.
Anika has forecasted the following revenues and costs for the proposed 25-room hotel:
• selling price: £100 a day per room
• fixed costs: £6300 per week
• variable costs: £40 a day per room.
Identify one reason, other than expansion, why a business needs finance.
Explain why profit is important to a business’ future.
Calculate the daily break-even quantity for the proposed hotel.
Analyse one disadvantage to the partnership if the proposed hotel’s fixed costs were 10% higher than expected.
Identify two uses of a cash flow forecast to a business.
Analyse one advantage to the partnership of taking on Finley as a new partner to fund the proposed hotel.
Analyse one disadvantage to the partnership of taking on Finley as a new partner to fund the proposed hotel.
Recommend whether the partnership should take on Finley as a new partner or use a bank loan to fund the proposed hotel.
Text 3
Glorious Kitchens Ltd
Glorious Kitchens (GK) is a private limited company based in Brighton. The company makes and fits high-quality, luxury wooden kitchens throughout the south-east of England. Its most popular range is the Deluxe.
The average price of a Deluxe kitchen is £15 000 including fitting. GK calculates its fixed costs for the year to be £250 000 and its variable costs for the Deluxe to be £6380, which means they need to sell 29 kitchens to break even.
GK is concerned about the future economic climate and its possible impact on the company’s sales. It is predicted that there will be a fall in consumer incomes in the south-east of England until 2025. Unemployment in the south-east of England is forecast to follow the trend shown in Table 1.
Financial data for GK at the end of 2022 is shown in Table 2.
State one reason why cash is important to a business.
Analyse how GK can use the break-even level of output for its Deluxe range.
Analyse one limitation to GK of using break-even when making decisions about its Deluxe range.
Analyse one impact on GK of the predicted fall in consumer incomes.
Analyse one impact on GK of the forecast change in the unemployment rate shown in Table 1.
Recommend whether the predicted fall in consumer incomes or the forecast change in the unemployment rate will have the greatest impact on GK.
* Evaluate how useful the financial data in Table 2 is to GK’s stakeholders.
Amaya is a gardener. She charges £15 per hour. Her fixed costs are £18 000 per annum. Her variable costs are £2 per hour.
How many hours of gardening will Amaya need to do to start to make a profit?
A 1059
B 1385
C 2340
D 3060
Identify one economic factor which may affect a company’s profit.
Analyse the importance of quality in the production of the houses that BD plc produces.
Analyse one advantage to BD plc of obtaining 90% of its raw materials from the UK.
Analyse one advantage and one disadvantage to BD plc of producing components in batches at its factory.
Recommend whether BD plc should continue to produce components in batches at its factory.
* Evaluate how useful break-even analysis is to BD plc’s pricing and promotional decisions.
Kim is a driving instructor. Kim charges £30 for a one-hour lesson. Her fixed costs are £14 000 per annum. The variable cost for a one-hour lesson is £6.
How many one-hour lessons will Kim need to give before making a profit?
A 389 lessons
B 467 lessons
C 584 lessons
D 2334 lessons
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