2.2

Question 1

What are the advantages for using a break-even graph?

Answer 1

Work out minimum amount of sales to not make a loss
Modelling tool to work out suitable pricing strategies using different prices
Effects on changes with variable and fixed costs can be seen and contingency plans put in place
Support an application for a loan

Question 2

What are the disadvantages for using a break-even graph?

Answer 2

Assumes all output is sold, not taking waste into account
Assumes costs increase at a constant level
Assumes that selling price is constant

Question 3

What are the factors that affect break-even levels of output?

Answer 3

Increase in costs increases the break-even level while a decrease lowers it
Increase in revenue decreases the break-even level while a decrease raises it

Question 4

How can you lower the break-even level of output?

Answer 4

Lowering fixed costs
Increase selling price
Lowering variable costs

Question 5

How can you lower the break-even level of output by lowering fixed costs?

Answer 5

Negotiating a cheaper rent
Moving to smaller premises
Shopping around for cheaper insurance premiums and utility costs

Question 6

How can you lower the break-even level of output by increasing selling price?

Answer 6

The product or service must be priced inelastic
Prices can increase when there is a shortage in supply

Question 7

How can you lower the break-even level of output by lowering variable costs?

Answer 7

Switching to a cheaper supplier
Buying stock in bulk at a discounted price
Using less or poorer-quality material
Paying lower wages