This set has eleven original questions, ordered from easier to harder, covering all five lessons in costs, revenue and break-even. Questions 1 to 3 practise sorting costs, 4 and 5 contribution and profit, 6 and 7 break-even and charts, 8 the margin of safety, and 9 to 11 assumptions and mixed reasoning.
All businesses here are fictional, and the figures are simplified.
Check the Cambridge pages for Business 0264 and Business Studies 0450 to see how your exam year words these topics.
Write each answer on paper, with units, then open the answer. Round break-even output up to a whole unit. Note which questions you missed and use the routing list at the end.
The mistake log and retest queue helps you retry a fresh version later, and the break-even and contribution explorer lets you test your own figures.
Questions
1. A bakery in Ipoh has these costs: (a) shop rent RM3,200 a month; (b) flour used in the cakes; (c) the manager’s salary of RM4,500 a month; (d) RM2 paid to a rider for each parcel delivered; (e) insurance of RM2,400 a year. Classify each as fixed or variable.
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Fixed: (a) rent, (c) manager’s salary and (e) insurance, because the bills do not change with the number of cakes. Variable: (b) flour and (d) rider payments, because they rise with output. The insurance is RM2,400 ÷ 12 = RM200 a month if you need a monthly figure.
2. A workshop has fixed costs of RM8,000 a month and variable costs of RM6 per unit. Calculate total cost and average cost per unit at 1,500 units.
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Variable cost = 1,500 × 6 = RM9,000. Total cost = 8,000 + 9,000 = RM17,000. Average cost = 17,000 ÷ 1,500 = RM11.33 per unit to two decimal places.
3. The same kind of workshop has fixed costs of RM9,000 a month. Find the fixed cost per unit at 1,000 units and at 3,000 units, and explain the change.
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At 1,000 units: 9,000 ÷ 1,000 = RM9. At 3,000 units: 9,000 ÷ 3,000 = RM3. Total fixed cost does not change, but it is shared across three times as many units, so each unit carries one third as much.
4. A catering firm sells a set meal for RM25. Ingredients cost RM9.50, packaging RM1.50 and the driver’s commission RM2.00 per meal. Calculate contribution per meal and total contribution for 700 meals.
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Variable cost = 9.50 + 1.50 + 2.00 = RM13. Contribution per meal = 25 − 13 = RM12. Total contribution = 12 × 700 = RM8,400.
5. The catering firm has fixed costs of RM5,600 a month. Calculate profit at 700 meals, and check it by a second method.
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Profit = 8,400 − 5,600 = RM2,800. Check: revenue = 25 × 700 = RM17,500; variable costs = 13 × 700 = RM9,100; fixed costs = RM5,600. Profit = 17,500 − 9,100 − 5,600 = RM2,800. Both routes agree.
6. Calculate the catering firm’s break-even output as a whole number of meals, and the revenue at that output.
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Break-even = 5,600 ÷ 12 = 466.67, so round up to 467 meals. Check: 467 × 12 = RM5,604, which covers the fixed costs, while 466 × 12 = RM5,592 does not. Revenue at 467 meals = 467 × 25 = RM11,675.
7. A break-even chart for a printing firm shows fixed costs of RM4,000. The revenue line and total cost line cross at 800 units, at a value of RM8,000. The firm plans to sell 1,100 units. Find the selling price per unit, the variable cost per unit, the margin of safety in units and as a percentage of planned sales, and the planned profit.
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Price = 8,000 ÷ 800 = RM10. At the crossing, total cost is 8,000, so variable cost = 8,000 − 4,000 = 4,000, which is 4,000 ÷ 800 = RM5 per unit. Margin = 1,100 − 800 = 300 units, or 300 ÷ 1,100 × 100 = 27.3% of planned sales. Profit = 300 × 5 = RM1,500. Check: revenue 11,000, total cost 4,000 + 5,500 = 9,500, profit 1,500.
8. A shop has break-even output of 450 units and sells 600 units at RM18 each. Calculate the margin of safety in units, as a percentage of sales, and in ringgit.
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Margin = 600 − 450 = 150 units. Percentage = 150 ÷ 600 × 100 = 25%. In ringgit = 150 × 18 = RM2,700. State that the percentage uses actual sales as the base.
9. The printing firm in question 7 is thinking of cutting the price from RM10 to RM9 to attract more orders. Find the new break-even output and say how many more units must be sold to break even.
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New contribution = 9 − 5 = RM4. New break-even = 4,000 ÷ 4 = 1,000 units. Old break-even was 800 units, so it needs 200 more units, which is a rise of 200 ÷ 800 = 25%. A price cut of RM1 reduced contribution per unit by a fifth, from RM5 to RM4, and raised break-even by a quarter.
10. Another firm sells at RM20 with variable cost of RM12 and fixed costs of RM4,000. It plans to sell 520 units. The owner says, “Break-even is 500, so we are safe.” Test this claim by finding what happens if variable cost rises by RM1.
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Base case: contribution = 8, break-even = 4,000 ÷ 8 = 500, margin = 20 units, which is 20 ÷ 520 × 100 = 3.8% of sales. That is thin. If variable cost rises to RM13, contribution = 7 and break-even = 4,000 ÷ 7 = 571.43, so 572 units. Planned sales of 520 are now below break-even, with a loss of 4,000 − 520 × 7 = 4,000 − 3,640 = RM360. “Safe” is not supported, because a 1 ringgit rise in cost turns a small profit into a loss.
11. A stall sells each item for RM10. Variable cost is RM6, fixed costs are RM2,400 a month and planned sales are 900 items. Then the supplier raises variable cost to RM7. Calculate break-even and the margin of safety (units and percentage of planned sales) before and after the rise, and write a two-sentence conclusion.
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Before: contribution = 4, break-even = 2,400 ÷ 4 = 600, margin = 900 − 600 = 300 items, which is 300 ÷ 900 = 33.3%. After: contribution = 3, break-even = 2,400 ÷ 3 = 800, margin = 900 − 800 = 100 items, which is 100 ÷ 900 = 11.1%.
Conclusion: “The RM1 rise in variable cost lifts break-even from 600 to 800 items and cuts the margin of safety from 33.3% to 11.1%. The stall is still above break-even, but it now has little room for a fall in sales, so it should look at its price or its supplier.”
If you got these wrong
- Questions 1 to 3: you may have mixed up a fixed total with a fixed cost per unit, or missed a variable cost. Return to classifying fixed and variable costs.
- Questions 4 to 6: you may have left out part of the variable cost, mixed up contribution with profit, or rounded break-even down. Return to calculating contribution.
- Question 7: you may have started total cost at the origin or read the wrong axis. Return to reading a break-even chart.
- Questions 8 and 10: you may have used the wrong base for the percentage or given a verdict without a reason. Return to explaining a margin of safety.
- Questions 9, 10 and 11: you may have changed more than one figure at once or skipped the test. Return to testing the assumptions behind a break-even conclusion.
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