Break Even Exam Questions BTEC Foundation Diploma(1)

Use the following data to answer the question below

Fixed costs: = £30,000

Variable cost: = £200 per photo shoot

Forecast output (Sales): = 140 photo shoots

Selling price: = £1000 per photo shoot

What is the total contribution? (3 marks)

• £800

• £140 000

• £112 000

• £32 000

Kiran has worked out the following figures for new beanie hats he is going to sell. He estimates that he can produce 20 000 hats a month with a selling price of £3.50. He expects the machinery costs to be £60 000 per annum, staff salaries are £72 000 per annum and raw materials cost £30 000 per month.

Calculate the margin of safety (4 marks)

Kiran is considering purchasing a van to help carry his equipment to his bookings. He is thinking of spending £10,000. He is expecting the van to be used for at least four years. The dealership has advised Sam that in four years’ time the van should have a resale value of £2000.

Calculate the depreciation of the van using the straight- line method. (3 marks)

Discuss the benefits and drawbacks of calculating the contribution per unit (6 marks)Tick which of these answers is correct?

• Straightforward to calculate

• Helps with calculation of break even level of output

• Does not include fixed costs

• Does not account for unexpected changes e.g. variable costs altering

• Does not take into account that fixed costs like rent can alter

Kiran has a motor vehicle. The motor vehicle at cost was £18 000 and the depreciation for the motor vehicle was £11 000. The vehicle is depreciated by 15% using the reducing balance method.

Calculate the new net book value for the motor vehicle (3 marks)

State one advantage of using a break even chart (1 mark)

• Is based on predicted costs and revenues

• Can calculate the level of profit or loss at different levels

• Ignores changes in variable costs

• Does not take account of external factors

Chris has decided to invest in a tow truck to provide a call out service to customers. He feels that this will be a profitable investment and an opportunity for them to increase their profits. The truck will cost them £12,000 to buy second-hand and Chris estimates that there will be,

on average, £49 of labour and petrol costs required for each call out. He expects the customer call out charge to be £145.

Calculate how many ‘call outs’ would be required for Chris to break even on this investment.

When Andrew set up at the start of 2015, he purchased a van to enable him to collect stock and undertake any other business related activities. The van cost £22,000 and is expected to have a life span of 4 years. It is assumed the vehicle will have a scrap value of £2,000.

Using the straight-line method at 25% per year, calculate the net book value of the van for the

year ended 31 Dec 2015 (2 marks)

Average selling price per treatment £17

Break-even output per month 360

Variable cost per treatment £7

Average number of treatments sold per month 487

Using the data provided in the table above, calculate Chloe’s monthly fixed costs (2 marks)