IGCSE - Chapter 19 & 20

What is a fixed cost?

• Varies with output
• Cost per unit
• Stays the same
• Changes weekly
• Total revenue

Answer explanation

Fixed costs do not change with the level of output (e.g., rent, salaries).

What is a variable cost?

• Always increasing
• Never changes
• Varies with output
• Always low
• Not needed

Answer explanation

Variable costs increase as more products are made, like raw materials.

How is total cost calculated?

• Variable – Fixed
• Fixed + Variable
• Selling price × Output
• Revenue – Costs
• Profit + Revenue

Answer explanation

Total cost = Fixed costs + Variable costs.

What is average cost?

• Total cost per unit
• Cost of fixed inputs
• Cost of one machine
• Revenue per unit
• Wage per hour

Answer explanation

Average cost = Total cost ÷ number of items made.

What is the break-even point?

• When costs fall
• No sales made
• Costs = Revenue
• Output = Zero
• Profit = High

Answer explanation

At break-even, a business makes neither profit nor loss.

Formula for break-even output?

• Total cost ÷ Price
• Revenue × Output
• Fixed cost ÷ (Selling price - Variable cost)
• Price × Quantity
• Variable cost ÷ Output

Answer explanation

This formula finds how many products must be sold to break even.

What does margin of safety show?

• Minimum output
• Sales below BEP
• Extra sales above BEP
• Extra revenue
• Wasted units

Answer explanation

It shows how many sales a business can lose before making a loss.

Which is an example of a fixed cost?

• Electricity
• Ingredients
• Sales commission
• Rent
• Plastic cups

Answer explanation

Rent is paid regularly, no matter how many products are made.

Which is a variable cost?

• Rent
• Advertising
• Manager salary
• Raw materials
• Insurance

Answer explanation

Raw materials increase when more products are made.

Which is a benefit of break-even analysis?

• Shows customer data
• Predicts sales

• Simple to use
• Needs no data
• Makes product decisions

Answer explanation

Break-even charts are easy to understand and support decisions.