Pearson Edexcel International A Level · Accounting (YAC11)

Break-even analysis: Practice Questions

1 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on Break-even analysis.

6 questions22 marksFree, no account

Question 1

1 mark

Which of the following is the correct formula to calculate the margin of safety in units?

Question 2

3 marks

A firm currently produces \(5,000\) units. The break-even point is \(3,500\) units. Calculate the margin of safety as a percentage of current sales.

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Question 3

3 marks

Explain the term angle of incidence as used in a graphical representation of break-even analysis.

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Question 4

5 marks

On a break-even chart, the total cost line and sales revenue line are plotted. Describe the visual area that represents total contribution at any level of output.

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Question 5

4 marks

A company manufactures a single product with a selling price of \(\$50\) per unit. The variable costs are \(\$30\) per unit and total fixed costs amount to \(\$40,000\) per annum.

Required:
a) Calculate the break-even point in units.
b) Calculate the margin of safety in units if the company expects to sell \(2,500\) units.

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Question 6

6 marks

The following information relates to a business that produces a specialized component:
Current Sales: \(8,000\) units at \(\$25\) per unit.
Fixed Costs: \(\$60,000\).
Variable Costs: \(\$15\) per unit.

The management is considering reducing the selling price to \(\$22\) to increase sales volume by \(25\%\). This change would also increase fixed costs by \(\$5,000\) due to additional advertising.

Required:
a) Calculate the current break-even point in units and sales value.
b) Calculate the revised break-even point in units if the proposed changes are implemented.
c) Advise management whether they should proceed with the price reduction based on the change in total profit.

Write your answer out first, then check it against the worked solution.

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