Break Even – Practice Exam Questions



Break Even – Year 12 Progress Test

Total: 33 marks

Time allowed: 50 minutes

ToyStar Limited is a producer and retailer of toys for children. They are an established business and have been trading for 30 years and have a large factory in Northampton. They have 24 retail outlets around the United Kingdom.

Cost, revenue and profits for ToyStar Limited - 2010

|Sales Revenue |£6,000,000 |

|Fixed Costs |£2,000,000 |

|Variable Costs |£2,250,000 |

|Total Costs |£4,250,000 |

|Profit |£1,750,000 |

They currently sell 750,000 products per year at an average price of £8.00 per product.

1. Define the term ‘contribution’. (2 marks)

2. How many products does the business have to sell to break even in 2010?

(5 marks)

3. On the break even chart supplied, you are to:

(a) draw the ‘revenue line’ (4 marks)

(b) draw the ‘fixed cost line’ (2 marks)

(c) label the break even point (4 marks)

(d) mark and label the margin of safety (2 marks)

4. If sales for 2011 were 1,000,000 units, what level of profit would ToyStar earn? [Assume that fixed costs, variable costs per unit and average selling price are unchanged.] (5 marks)

5. Evaluate why the management of ToyStar would use break even analysis.

(9 marks)

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