MyStudyBro - Revision Exercise Tool

This Revision Handout includes the Questions and Answers of a total of 5 exercises!

Chapters:
Break Even - Unit 2 (Pearson Edexcel)
Page 1 (WAC02 or WAC12) 2019 Winter
Page 4 (WAC02 or WAC12) 2019 Winter - Answer
Page 8 (WAC02 or WAC12) 2018 Winter
Page 10 (WAC02 or WAC12) 2018 Winter - Answer
Page 15 (WAC02 or WAC12) 2018 Summer
Page 18 (WAC02 or WAC12) 2018 Summer - Answer
Page 21 (WAC02 or WAC12) 2018 Autumn
Page 23 (WAC02 or WAC12) 2018 Autumn - Answer
Page 27 (WAC02 or WAC12) 2017 Autumn
Page 30 (WAC02 or WAC12) 2017 Autumn - Answer
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5 Loxton Pumps Ltd produces water pumps for vehicles. The company is owned by the
Loxton family and has been trading for nearly 80 years.
The following information is available:

November December January

2018 2018 2019
50 000
Units produced 48 000 39 000
(planned)

Total production costs £785 830 £661 900

Fixed costs per month and variable costs per unit stay the same for each month.
All production is sold.
The selling price of each water pump is £16.80
Required
(a) Calculate the:
(i) variable cost per unit
(3)
(ii) fixed costs per month.
(3)
(b) Calculate the profit or loss for the month of December 2018.
(4)
(c) Calculate, for the month of January 2019, the:
(i) break-even point in sales units
(4)
(ii) margin of safety in sales revenue.
(4)
(d) Prepare a break-even chart for January 2019 using the graph. You should label the
following:
• fixed costs
• total costs
• sales revenue
• break-even point
• margin of safety, measured in sales revenue
• profit or loss for the month.
(6)

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At a board meeting in January, Robert Loxton stated “I am worried about the

December figures. Should the company continue trading in the future?”
(e) Evaluate the statement made by Robert Loxton and recommend if
Loxton Pumps Ltd should continue trading in the future.
(6)

(Total for Question 5 = 30 marks)

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1000

900

800

700

600

Revenue/cost (£000s) 500

400

300

200

100

0
0 10 20 30 40 50
Output (000’s)

*P54958A03340*
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Question Answer Mark

Number
5(a)(i) AO3 (3)
AO3: Three marks for calculating the variable costs per
unit.

November December
Total
Production cost £785 830 £661 900
Units produced 48 000 39 000

Difference £123 930 (1) AO3

9 000 (1) AO3

Variable cost (3)

Per unit £13.77 (1of) AO3

Question Answer Mark

Number
5(a)(ii) AO1 (2), AO2 (1)
AO1: Two marks for calculation of variable cost and
fixed costs figure for the subtraction.
AO2: One mark for correct subtraction to give answer.

Variable cost £48 000 x £13.77= £660 960

for November (1of) AO2

Fixed cost £785 830 - £660 960 (1of) AO1

for November = £124 870 (1of) AO1

(3)

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Question Answer Mark

Number
5(b) AO2 (4)
AO2: Four marks for correct calculation of profit or loss
for the month.

Profit for December

Sales Revenue £655 200 (1) AO2

Less

Variable costs (£537 030) (1of) AO2

Fixed costs (£124 870) (1of) AO2

(4)
Loss for month (£6 700) (1of) AO

Question Answer Mark

Number
5(c)(i) AO3 (4)
AO3: Four marks for correct calculation of break-even
point in sales units.

Contribution
per unit £16.80 - £13.77 = £3.03 (1of) AO3

Break even £124 870 (1of) AO3 = 41 212 units

Point £ 3.03 (1of) AO3 (1of) A03 (4)

Question Answer Mark

Number
5(c)(ii) AO1 (3), AO2 (1)
AO1: Three marks for correct calculation of margin of safety
in units and use of selling price.
AO2: One mark for correct calculation of margin of safety
measured in sales revenue.

Margin of safety (50 000 -41 212) (1of) AO1

= 8 788 units (1of) AO1

(8 788 x £16.80) (1of) AO1

(4)
= £147 638.40 (1of) AO2

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Question Answer Mark

Number
5(d) AO2 (6) One mark each for correctly drawing on the graph the
following:
fixed costs
total costs
sales revenue
break-even point
margin of safety in sales revenue
profit or loss for the month

(6)

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Question Indicative Content Mark

Number
5 (e) AO4 (6). Own figure rule applies throughout.

Answers may include:

Case For Continuing Trading

The company has achieved break-even point and made a profit in
November.
The planned production for January should yield a profit if all the units
are sold. It may be that the company produces to order, which
guarantees sales.
Production may have been low in December because the company was
shut for a holiday period for a week.

Case Against Continuing Trading

The company made a loss in December. If this a regular occurrence,
then the company may have no future.

Other points
The figures for January are only estimates - they could be better or
worse for the company.
What is the future order book like for the company.
Does the company have past profits to keep the company solvent in
periods of poor sales?

Decision
The company should/should not continue trading. (6)
Level Mark Descriptor
0 A completely incorrect response.
Level 1 1-2 Isolated elements of knowledge and understanding which are recall
based.
Generic assertions may be present.
Weak or no relevant application to the scenario set.
Level 2 3-4 Elements of knowledge and understanding, which are applied to the
scenario.
Some analysis is present, with developed chains of reasoning, showing
causes and/or effects applied to the scenario, although these may be
incomplete or invalid.
An attempt at an evaluation is presented, using financial and perhaps
non-financial information, with a decision.
Level 3 5-6 Accurate and thorough knowledge and understanding. Application to
the scenario is relevant and effective.
A coherent and logical chain of reasoning, showing causes and effects is
present.
Evaluation is balanced and wide ranging, using financial and perhaps
non-financial information and an appropriate decision is made.

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6 Hasana Kwemoi will start a business producing soft toys, on 1 April 2018. She has yet
to decide whether to produce the toys in a small factory, or use workers to produce
the toys at home.
The following information is available for the factory.
Rent of factory £1 290 per quarter (three-month period).
Direct materials for production £0.32 per toy.
Labour to be paid a fixed rate of £115 per week, working a 40-hour week.
Insurance per year £510
Loan interest £250 a month.
Delivery costs £0.02 per toy.
Other fixed costs £65 a month.
All production will be sold, selling at £1.99 per toy.
Each worker can produce 3 toys per hour and 5 workers are to be employed.

Production is over a full year of 52 weeks.

Required
(a) Calculate the number of toys to be produced and sold in the year ended
31 March 2019 to break-even if the toys are produced in the factory.
(9)
(b) Calculate the expected profit or loss by Hasana in the year ended 31 March 2019
if the toys are produced in the factory.
(3)

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The following information is available for production using workers at home.

Hasana would run the business from a small office and rent would be £425 per
quarter.
Direct materials for production £0.32 per toy.
Labour would be paid a rate of £0.75 per toy produced.
Insurance would be £220 per year less than the factory.
Loan interest £125 a month.
Delivery costs £0.11 per toy.
Other fixed costs would be £25 a month less than the factory.
A motor van would have to be purchased for £5 000. This would last 8 years before
being sold for £400.
All production will be sold at a selling price of £1.49 per toy.
Each worker would produce 20 toys a day, working for 5 days a week and 7 workers
are to be employed.
Production is over a full year of 52 weeks.
Required
(c) Calculate the number of toys to be produced and sold in the year ended
31 March 2019 to break-even using workers to produce toys at home.
(9)
(d) Calculate the expected profit or loss by Hasana in the year ended
31 March 2019 using workers to produce toys at home.
(3)
(e) Evaluate the two possible production options for Hasana.
(6)

(Total for Question 6 = 30 marks)

TOTAL FOR SECTION B = 90 MARKS

TOTAL FOR PAPER = 200 MARKS

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Level 3 5-6 Accurate and thorough knowledge and understanding.

Application to the scenario is relevant and effective.
A coherent and logical chain of reasoning, showing
causes and effects is present.
Evaluation is balanced and wide ranging, using financial
and perhaps non-financial information and an
appropriate decision is made.

Question Answer Mark

Number
6 (a) AO1 (3), AO2 (6)
AO1: Three marks for calculation of rent,
labour and total fixed costs.
A02: Six marks for calculation of remaining
fixed costs, total variable costs, contribution
and break-even point.

(9)

Fixed Costs Rent (£1 290 x 4) = £5 160 (1)AO1

Labour (5 x £115 x 52) = £29 900 (1)AO1
Insurance = £510
Loan Interest (£250 x 12) = £3 000
Other FC (£65 x 12) = £780 (1)AO2 all three
Total FC = £39 350 (1of)AO1
Variable Costs per Direct materials = £0.32
unit Delivery costs = £0.02
Total VC = £0.34 (1)AO2

Contribution per (£1.99 - £0.34) = £1.65 (1of)AO2

unit
Break-even point 39 350 (1of)AO2
1.65 (1of)AO2
= 23 849 units (1of)AO2

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Question Answer Mark

Number
6 (b) AO3 (3)
AO3: Three marks for calculation of profit.

(3)

Sales 31 200 x £1.99 = £62 088 (1)AO3

Less Fixed Costs = (£39 350) of
Less Variable Costs (31 200 x £0.34) = (£10 608) (1of)AO3 both
= Profit = £12 130 (1of) AO3

Question Answer Mark

Number
6 (c) AO1(2), AO2 (6), AO3 (1)
AO1: Two marks for calculation of rent and
total fixed costs.
AO2: Six marks for calculation of three fixed
costs, total variable costs, contribution and
break-even point.
AO3: One mark for correct calculation of
depreciation. (9)

Fixed Costs Rent (£425 x 4) = £1 700 (1)AO1

Insurance = £290
Loan Interest (£125 x 12) = £1 500
Other FC (£40 x 12) = £480 (1)AO2 all three
Depreciation (5 000 – 400)/8 = £575 (1)AO3
Total FC = £4 545 (1of)AO1
Variable Costs per Direct materials = £0.32
unit Delivery costs = £0.11
Direct labour = £0.75
Total VC = £1.18 (1)AO2

Contribution per unit (£1.49 - £1.18) = £0.31 (1of)AO2

Break-even point 4 545 (1of)AO2
£0.31 (1of)AO2
= 14 662 units (1of)AO2

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Question Answer Mark

Number
6 (d) AO3 (3)
AO3: Three marks for calculation of profit.

(3)

Sales 36 400 x £1.49 = £54 236 (1)AO3

Less Fixed Costs = (£4 545) of
Less Variable Costs (36 400 x £1.18) = (£42 952) (1of)AO3 both
= Profit = £6 739 (1of)AO3

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Question Indicative Content Mark

Number
6 (e) A04 (6)
Own figure rule applies
Producing in a factory

Profit is greater at £12 130 compared to £6 739 using

home workers. This is higher by £5 391
Output is 31 200 units with labour paid £0.95 per toy.
Perhaps it is possible to reduce break-even point by
paying labour for every unit produced i.e. make labour a
variable cost.
Factory premises need to be found, which may be
difficult.

Producing using home workers

Break-even point is less at 14 662 units compared to

23 849 units producing in the factory. This is lower by
9 187 units.
Output is 36 400 units with labour paid £0.75 per toy.
Costs are lower, and the selling price is lower, but is it
possible to increase the selling price?
Less capital required to start up the business.
Delivering parts and finished products to and from home
workers may not be environmentally friendly,
Production target may be more difficult to achieve as
workers are working unsupervised.

Other points

Figures are all predictions and may not be as expected.

Decision

Should produce using the factory, as profit is more

important than break-even point.
(6)
Level Mark Descriptor
0 A completely incorrect response.
Level 1 1-2 Isolated elements of knowledge and understanding
which are recall based.
Generic assertions may be present.
Weak or no relevant application to the scenario set.

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Level 2 3-4 Elements of knowledge and understanding, which are

applied to the scenario.
Some analysis is present, with developed chains of
reasoning, showing causes and/or effects applied to the
scenario, although these may be incomplete or invalid.
An attempt at an evaluation is presented, using
financial and perhaps non-financial information, with a
decision.
Level 3 5-6 Accurate and thorough knowledge and understanding.
Application to the scenario is relevant and effective.
A coherent and logical chain of reasoning, showing
causes and effects is present.
Evaluation is balanced and wide ranging, using financial
and perhaps non-financial information and an
appropriate decision is made.

Pearson Education Limited. Registered company number 872828

with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

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6 Wittwater Mining plc carries out regular reviews of its operations. The world price
of gold has risen to £32 000 per kilo and is expected to stay at this level. This has
resulted in Wittwater Mining plc considering reopening some gold mines that it had
previously closed, as they were making a loss. These are the three gold mines in the
Eastern Area. Wittwater Mining plc cannot sell at a price above £32 000 per kilo as
customers would purchase from other suppliers.
The estimates for 2019 for the three gold mines in the Eastern area are nearing
completion.
All production of gold is sold at the world price, of £32 000 per kilo.
The following information is available (some figures are given in total, others are
given per kilo):

Boksville mine Igolide mine Orange Deep mine

Revenue To be calculated To be calculated £29 760 000

Direct labour £17 500 000 £16 000 per kilo £17 670 000

Direct materials £7 000 000 £6 000 per kilo £11 000 per kilo

Fixed costs £10 500 000 £4 400 000 To be calculated

Production - kilos 700 550 To be calculated

Fixed costs for the Orange Deep mine are made up of the following:
• plant, property and equipment that cost £135 000 000 is being depreciated over
15 years, using the straight line method
• other fixed costs will be £5 880 000
Required
(a) Calculate the total estimated profit or loss for each gold mine for 2019.
(12)
(b) Calculate the estimated contribution, and the estimated profit or loss, made by
each of the three gold mines, per kilo produced, for 2019.
(12)
(c) Evaluate the figures calculated in (b) to make a decision as to the future of each
of the three gold mines.
(6)

(Total for Question 6 = 30 marks)

TOTAL FOR SECTION B = 90 MARKS

TOTAL FOR PAPER = 200 MARKS

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Source material for Question 6 is on page 14 of the Source Booklet.

If you answer Question 6 put a cross in the box .

6 (a) Calculate the total estimated profit or loss for each gold mine for 2019.
(12)

Boksville mine Igolide mine Orange Deep mine

Workings

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(b) Calculate the estimated contribution, and the estimated profit or loss, made by
each of the three gold mines, per kilo produced, for 2019.
(12)

Per kilo Boksville Igolide Orange Deep

Workings

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*P51802A02932*
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Level 3 5-6 Accurate and thorough knowledge and understanding.

Application to the scenario is relevant and effective.
A coherent and logical chain of reasoning, showing
causes and effects is present.
Evaluation is balanced and wide ranging, using financial
and perhaps non-financial information and an
appropriate decision is made.

Question Answer Mark

Number
6 (a) AO1 (5), AO2 (7)
AO1: 5 marks for calculation of sales revenue
and inclusion and calculation of fixed costs.
AO2: 7 marks for calculation of direct labour
and direct materials and profit or loss per
mine.

Workings:
Direct materials

29 760 000 = 930 kilos (1) AO2 x £11 000 per kilo
32 000

= £10 230 000 (1) AO2

Fixed Costs

£135 000 000 = £9 000 000 per year (1) AO1

15

+ £5 880 000 = £14 880 000 (1) AO1

(12)

Boksville Igolide Orange

Deep
Sales Revenue 22 400 000 (1) AO1 17 600 000 (1) AO1 29 760 000
Production
Direct Labour 17 500 000 8 800 000 (1) AO2 17 670 000
Direct Materials 7 000 000 3 300 000 (1) AO2 10 230 000 (2) AO2
Fixed Costs 10 500 000 4 400 000 14 880 000 (2) AO1
(1of)
Total costs 35 000 000 16 500 000 42 780 000 AO1
(1of) (1of) (1of)
Profit (Loss) (12 600 000) AO2 1 100 000 AO2 (13 020 000) AO2

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Question Answer Mark

Number
6 (b) AO2 (5), AO3 (7)
AO2: 5 marks for calculation of direct labour,
direct materials, and profit or loss per unit.
AO3: 7 marks for calculation of sales revenue,
contribution and fixed costs per unit.

(12)

Boksville Igolide Orange

Per kilo Deep
Sales Revenue 32 000 32 000 32 000 (1) AO3
all three
Direct Labour 25 000 both 16 000 19 000 (1) AO2
Direct Materials 10 000 (1) AO2 6 000 11 000
all three both
(1of) (1of) (1of)
Contribution (3 000) AO3 10 000 AO3 2 000 AO3

Fixed Costs 15 000 (1) AO3 8 000 (1) AO3 16 000 (1) AO3

(1of) (1of) (1of)

Profit (Loss) (18 000) AO2 2 000 AO2 (14 000) AO2

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Question Indicative Content Mark

Number
6 (c) AO4 (6)

Boksville

Makes a negative contribution (o/f), so should not be

reopened, even in the short term. Also makes a loss
(o/f)

Igolide

Makes a positive contribution (o/f), so should be

reopened. Makes a profit (o/f), so should stay open in
the long term.

Orange Deep

Makes a positive contribution (o/f), so could be

reopened. However, makes an overall loss (o/f), so
should not stay open in the long term.
(6)
Level Mark Descriptor
0 A completely incorrect response.
Level 1 1-2 Isolated elements of knowledge and understanding
which are recall based.
Generic assertions may be present.
Weak or no relevant application to the scenario set.

Level 2 3-4 Elements of knowledge and understanding, which are

applied to the scenario.
Some analysis is present, with developed chains of
reasoning, showing causes and/or effects applied to the
scenario, although these may be incomplete or invalid.
An attempt at an evaluation is presented, using financial
and perhaps non-financial information, with a decision.
Level 3 5-6 Accurate and thorough knowledge and understanding.
Application to the scenario is relevant and effective.
A coherent and logical chain of reasoning, showing
causes and effects is present.
Evaluation is balanced and wide ranging, using financial
and perhaps non-financial information and an
appropriate decision is made.

Pearson Education Limited. Registered company number 872828

with its registered office at 80 Strand, London WC2R 0RL, United Kingdom

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5 Jacinda started a business selling soft drinks from mobile freezers in sites popular
with tourists. The town authorities have signed a contract that allowed Jacinda to
sell drinks from four sites, for the seven summer months of the year, starting
1 March 2018. For the remaining five months, Jacinda does not trade.
The following information is available for the business for the year ended
28 February 2019:
• Each site will be rented for seven months of the year. Rent of site per month:

Downs Park North Beach Pavilion Park South Beach

£100 £120 £80 £160

• Drinks are sold for £0.55 (55 pence) each

• Drink sellers receive £0.20 (20 pence) for each drink sold
• Insurance for the year is £1 250
• Drinks are purchased for £0.11 (11 pence) each from wholesalers
• The mobile freezers cost £2 700 each and are expected to last for nine years.
Jacinda has one for each site and a spare in case of a breakdown
• A small storage warehouse is rented for £275 per quarter (three months).
This warehouse is rented for a full year
• Electricity bill is £35 per month, for every month of the year
• As part of the contract, the town authorities will charge a local tax of £0.01 (1 pence)
on every drink sold
• Loan interest and repayment is £285 per month, for every month of the year
• Sales for each site (drinks per day) are:

Downs Park North Beach Pavilion Park South Beach

110 210 175 180

• Drinks are sold for 200 days of the year.

16
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Required
(a) Calculate, for the year ended 28 February 2019, the:
(i) number of drinks that need to be sold to break-even
(11)
(ii) forecast profit for the year.
(5)
The following information is available for the second year of trading, ended
29 February 2020:
• Fixed costs will total £11 000 for the year
• Drinks will be purchased for £0.12 (12 pence) each
• The council will charge a tax of £0.02 (2 pence) for every drink sold
• Jacinda has promised the drink sellers a pay rise, for every drink sold, in the
second year
• Target profit for the year will be £21 400
• The number of drinks sold will remain constant.
Required
(b) Calculate, in order to achieve the target profit:
(i) the required contribution per drink sold
(5)
(ii) a suitable pay rate to pay sellers for each drink sold, and a selling price for
each drink sold.
(3)
The town authorities require all businesses that sign a contract with them to produce
audited financial statements for their inspection.
(c) Evaluate the decision of the town authorities requiring Jacinda’s business to
produce audited financial statements for inspection.
(6)

(Total for Question 5 = 30 marks)

17
P54956A
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Question Answer Mark

Number
5 (a)(i) AO1 (4), AO2 (7)
AO1: Fourmarks for calculation of site rent,
electricity, total fixed costs, and variable
costs per unit.
AO2: Seven marks for correct calculation of
warehouse rent, depreciation, loan interest,
contribution per unit, and break-even point

(11)

Fixed Costs - per year Variable costs per unit

(0.20 + 0.11 + 0.01)
Rent (£460 x 7) = £3 220 (1) AO1 Total £0.32 per unit (1)AO1
Insurance = £1 250
Warehouse (£275 x 4) = £1 100 (1) both AO2
Depreciation £2700 x 5 = £1 500 (1) AO2
9
Electricity (£35 x 12) = £ 420 both
Loan (£285 x 12) = £3 420(1) AO2
Total FC £10 910 (1 of) AO1

Contribution per unit

(£0.55 - £0.32) (1 of)AO2= £0.23 (1 of) AO1

Break Even Point = £10 910(1 of) AO2 = 47 435 drinks (1 of) AO2
£0.23 (1 of) AO2

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Question Answer Mark

Number
5 (a)(ii) AO2 (5)
AO2: Five marks for correct calculation of
profit for 2019 (5)

Profit for 2018

Sales = (110 + 210 + 175 + 180) x 200 = 135 000 units (1) AO2
Sales revenue = 135 000 x 0.55 = £74 250 (1 of) AO2
Less VC = 135 000 x 0.32 o/f = (£43 200) (1 of)AO2
Less FC = (£10 910) (1 of)AO2
Profit = £20 140 (1 of)AO2

Question Answer Mark

Number
5 (b)(i) A01 (1) AO3 (4)
AO1: One mark for totalling target profit and
fixed costs.
AO3: Four marks for including target profit
and fixed costs, and three marks for
calculating the required contribution per unit
(5)

Target profit = £21 400

+ Fixed costs = £11 000 (1) AO3
£32 400 (1) AO1

135 000 o/f x Contribution per unit = £32 400 (1) AO3

Contribution per unit = £32 400(1of) AO3 = £0.24 (1of)AO3

135 000

Question Answer Mark

Number
5 (b)(ii) AO3 (3)
AO3: Three marks for calculating a selling
price 38 pence above labour cost (as long as
labour cost is above 20 pence)
(3)

Selling price – Variable costs = Contribution

SP - (Labour cost per drink + 0.12 + 0.02) = £0.24 (1) AO3

So selling price must be £0.38 higher than labour cost (1) AO3

For example Selling price £0.60 and labour cost £0.22 (1) AO3

(Accept any answer where selling price is £0.38 higher than labour cost, as long
as labour cost is above 20 pence (£0.20))

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Question Indicative Content Mark

Number
5 (c) AO4 (6)

Case for
The town authorities could see a true and fair view of
the number of drinks sold by the business. This
would allow them to charge an accurate tax on
Jacinda’s business.
Jacinda is assured she is meeting all necessary
requirements and disclosures, which may ensure
future contracts for Jacinda.
It will help Jacinda ensure a smooth running of the
business helping her e.g. control costs, planning,
decision making.

Case against
The town authorities would have to pay a member of
staff to study the audited accounts, which would cost
time and money.
Jacinda has to go to the time and expense of having
her accounts audited.
Loss of confidentiality by Jacinda.

Decision
It would be worthwhile for the town authorities to
study the audited financial statements of Jacinda.

(6)
Level Mark Descriptor
0 A completely incorrect response.
Level 1 1-2 Isolated elements of knowledge and understanding
which are recall based.
Generic assertions may be present.
Weak or no relevant application to the scenario set.

Level 2 3-4 Elements of knowledge and understanding, which are

applied to the scenario.
Some analysis is present, with developed chains of
reasoning, showing causes and/or effects applied to
the scenario, although these may be incomplete or
invalid.
An attempt at an evaluation is presented, using
financial and perhaps non-financial information, with
a decision.

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Level 3 5-6 Accurate and thorough knowledge and understanding.

Application to the scenario is relevant and effective.
A coherent and logical chain of reasoning, showing
causes and effects is present.
Evaluation is balanced and wide ranging, using
financial and perhaps non-financial information and
an appropriate decision is made.

Question Answer Mark

Number
6 (a)(i) AO1 (3)
AO1: Three marks for correct calculation of
total ordinary dividend paid.

Total ordinary dividend paid

= Dividend per share x number of shares

= 6 pence (1) AO1 x 15 000 000 (1) AO1

= £900 000 (1) AO1
(3)

Question Answer Mark

Number
6 (a)(ii) AO3 (3)
AO3: Three marks for correct calculation of
share price.

Share price
= Earnings per share x Price/earnings ratio

= 15 pence (1) AO3 x 8.4 times (1) AO3

= £1.26 (1) AO3
(3)

Question Answer Mark

Number
6 (a)(iii) AO2 (3)
AO2: Three marks for correct calculation of
dividend yield.

Dividend yield = Dividend per share

Market price of a share

= 6 pence(1) AO2 x 100

126 pence (1 of) AO2
(3)
= 4.76%(1 of)AO2

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SECTION B
Answer THREE questions from this section.
3 Soundz Around won a contract to supply 35 000 headphone sets in its first year of
trading to a multinational retailer. You are the Cost Accountant, and the following
information is available for Year 1:
• factory rent was £7 275 per quarter (three months)
• material costs per headphone set £3.85
• direct labour costs per headphone set £5.35
• electricity £6 500 per year plus 3 pence (£0.03) per headphone set
• insurance for the whole business was £220 per month
• other fixed costs were £2 980 per month
• each headphone set sells for £14.99
• the business operates for 50 weeks in a year.
Required
(a) Calculate, for Year 1, the break-even point in:
(i) sales units
(8)
(ii) sales revenue.
(2)
(b) Calculate, for Year 1, the:
(i) margin of safety in sales revenue
(3)
(ii) profit for the year.
(4)

8
P50731RA
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The following figures are estimated for Year 2:

• factory rent will rise to £7 500 per quarter (three months)
• insurance for the whole business will rise by 10%
• other fixed costs will rise by £125 per month
• material costs will rise by 2 pence (£0.02) per headphone set
• labour costs will rise by 5 pence (£0.05) per headphone set
• output and sales are to remain at 35 000 headphone sets
• all other costs and the selling price will remain the same.
The owner of Soundz Around wishes to see the Year 2 estimated figures on a graph.
(c) Prepare and label the following on the graph in the Question Paper:
• fixed costs
• total costs
• sales revenue
• break-even point
• margin of safety, measured in sales units
• angle of incidence
• profit for the year.
(7)
(d) Evaluate the use of ICT in break-even analysis.
(6)

(Total for Question 3 = 30 marks)

9
P50731RA
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600

500

400

Sales
revenue 300
£ (000’s)

200

100

0
0 5 10 15 20 25 30 35
Output (000’s)

*P50731RA02136*
21
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Question Answer Mark

Number
3 (a)(i) AO1(4), AO2 (1), AO3 (3)
AO1: Four marks for correct calculation of
fixed and variable costs.
AO2: One mark for correct calculation of
contribution.
AO3: Three marks for correct calculation of
break-even point.

Fixed Costs Variable costs per unit

Rent £29 100 £3.85 + £5.35 + £0.03 = £9.23 (1) AO1

Electricity £6 500 (1) AO1
Insurance £2 640 Contribution per unit
Other FC £35 760 (1) AO1 £14.99 - £9.23 o/f = £5.76 (1) o/f
AO2
Total FC £74 000 (1) o/f AO1

Break Even Point = £74 000 o/f (1) AO3 = 12 848 units (1) o/f AO3
£5.76 o/f (1) AO3
(8)

Question Answer Mark

Number
3 (a)(ii) AO2 (2)
AO2: Two marks for correct calculation of
break-even point in sales revenue.

Break even point (£)

= (12 848 o/f x 14.99) (1) AO2
= £192 591.52 (1) o/f AO2 (2)

Question Answer Mark

Number
3 (b)(i) AO1(1), AO3 (2)
AO1: One mark for correct calculation of
margin of safety.
AO3: Two marks for analysis of data to help
calculation of margin of safety.

Margin of safety = (35 000 x 14.99) (1) AO3 - 192 591.52 (1) o/f
AO3
= £524 650 - £192 591.52 o/f
= £332 058.48 (1) o/f AO1 (3)

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Question Answer Mark

Number
3 (b)(ii) AO2 (2), AO3 (2)
AO2: Two marks for correct calculation of
contribution and profit.
AO3: Two marks for analysis of data to help
calculation of contribution and fixed costs.

Profit
Contribution (£5.76 o/f x 35 000) (1) AO3
= £201 600 o/f (1) AO2
Less FC = (£74 000) o/f (1) AO3
Profit = £127 600 o/f (1) AO2
(4)

Question Answer Mark

Number
3 (c) AO2 (7)

(7)

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Question Answer Mark

Number
3 (d) AO4 (6)
Case for ICT
• Saves time and therefore money,
compared to preparing accounts by
hand.
• Spreadsheets can be used for
calculations for break-even analysis.
• Spreadsheets can also be used to
generate graphical information.

Case against ICT

• Financial cost of hardware, software,
staff training, running costs,
maintenance etc.
• If staff are not trained or are unskilled,
they can make errors, which may lead
to generation of incorrect information.
• Security risks if management or
company wish to keep the information
confidential.
• Computer crashes, freezes etc which
may result in a loss of information and
waste of staff time.
Decision
ICT is very advantageous for break-even analysis.
The decision should be supported by reference to
key points of their argument. (6)
Level Mark Descriptor
0 A completely incorrect response.
Level 1 1-2 Isolated elements of knowledge and understanding
that are recall based.
Generic assertions may be present.
Weak or no relevant application to the scenario set.
Level 2 3-4 Elements of knowledge and understanding, which are
applied to the scenario.
Some analysis is present, with developed chains of
reasoning, showing causes and/or effects applied to
the scenario, although these may be incomplete or
invalid.
An attempt at an evaluation is presented, using
financial and perhaps non-financial information, with
a decision.
Level 3 5-6 Accurate and thorough knowledge and understanding.
Application to the scenario is relevant and effective.
A coherent and logical chain of reasoning, showing
causes and effects is present.
Evaluation is balanced and wide-ranging, using
financial and perhaps non-financial information and
an appropriate decision is made.

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