Revenue Costs and Break Even

Question 1

How is contribution calculated?

Answer 1

Selling price - variable cost per unit

Question 2

Define capacity.

Answer 2

The amount of products a factory can produce.

Question 3

How can a business increase sales revenue?

Answer 3

Change the price (increase or decrease). Increase the amount sold.

Question 4

True or false - all firms want to grow.

Answer 4

False - some firms like to operate in a small, local market

Question 5

As firms get bigger they can employ specialist managers. This is called Managerial economies - true or false?

Answer 5

TRUE

Question 6

Define break-even level of output.

Answer 6

The level of output at which a business neither makes a profit nor a loss.

Question 7

Define economies of scale.

Answer 7

As production increases, the average costs of production decrease.

Question 8

Define variable costs.

Answer 8

Costs that change in direct relation to the quantity produced.

Question 9

Give three examples of variable costs.

Answer 9

Packaging, raw materials, delivery costs.

Question 10

Define fixed costs.

Answer 10

Costs that do not change as the number produced changes.

Question 11

What is the formula for sales revenue?

Answer 11

Quantity sold x selling price

Question 12

How is profit calculated?

Answer 12

Sales revenue - total costs.

Question 13

Define margin of safety.

Answer 13

The amount by which a business’ actual output is greater than its break-even output level.

Question 14

Other than changing the price, how can a business increase the number of products sold?

Answer 14

Increase advertising. Sell in a greater number of outlets. Increase product range.

Question 15

True or false - sales turnover is another name for sales revenue.

Answer 15

TRUE

Question 16

What is the formula for average cost?

Answer 16

Total cost/number produced.

Question 17

True or false - purchasing economies are achieved when buying in large quantities.

Answer 17

TRUE

Question 18

Give three ways average costs can be reduced.

Answer 18

Reduce materials/stock costs. Increase efficiency. Achieve economies of scale.

Question 19

Define diseconomies of scale.

Answer 19

This is when the average cost of production rises as the scale of production increases.

Question 20

How can reducing the price of a product increase sales revenue?

Answer 20

For price elastic goods, significantly more will be sold at the lower price, resulting in more revenue.

Question 21

Give three reasons why break-even forecasts should be treated with caution.

Answer 21

Forecast costs could be different. Figures are usually for one product. Assumes all output sold.

Question 22

Give three examples of fixed costs.

Answer 22

Rent, business rates, insurance.

Question 23

What is excess capacity?

Answer 23

This is when the level of output is below the maximum capacity level.

Question 24

How are total costs calculated?

Answer 24

By adding all fixed costs and all variable costs at a particular level of output.

Question 25

Describe what contribution is used for.

Answer 25

Initially it covers fixed costs. Once fixed costs are paid, it becomes profit.

Question 26

True or false - saving on production through use of better methods and equipment is an example of Technical economies.

Answer 26

TRUE

Question 27

What is the break-even formula?

Answer 27

Fixed costs / (selling price-variable cost per unit)

Question 28

Will reducing the price of a price inelastic good increase sales revenue?

Answer 28

No - it is inelastic so demand won’t increase.

Question 29

True or false - diseconomies of scale occur when a firm becomes too big to be managed efficiently.

Answer 29

TRUE