Break Even TestBreak Even Test

This test consists of 10 questions This test consists of 10 questions designed to test your understanding designed to test your understanding of break even analysis.of break even analysis.

The links provide you with a choice of The links provide you with a choice of answer, along with explanations answer, along with explanations and solutions.and solutions.

You will need a calculator to complete You will need a calculator to complete this test.this test.

Question 1.Question 1.

Contribution can be found by using which of Contribution can be found by using which of the followingthe following

a. Revenue per unit - variable costs per unita. Revenue per unit - variable costs per unit

b. Fixed costs - variable costsb. Fixed costs - variable costs

c. Variable costs per unit - revenue per unitc. Variable costs per unit - revenue per unit

Your answer is correct.

Contribution measures the gross profit of each unit sold.Try again.

Contribution measures the gross profit of each unit sold.Try again.

Question 2.Question 2.

A firm has fixed costs of £1,200 , and A firm has fixed costs of £1,200 , and contribution per unit of 60p, what is break-contribution per unit of 60p, what is break-even level of output ?even level of output ?

A. 1,500 unitsA. 1,500 units

B. £2,000B. £2,000

C. 2,000 unitsC. 2,000 units

To find Break even level of output the formula is

fixed costs divided by contribution per unit.

.

Try Again

To find Break even level of output the formula is

fixed costs divided by contribution per unit.

And remember we are looking for an output quantity, not a monetary value

Try Again

Correct

Question 3.Question 3.

What is a firms break even point if its fixed What is a firms break even point if its fixed costs are £1,300 per week, revenue £4.00 costs are £1,300 per week, revenue £4.00 per unit and variable costs £2.50 per unit??per unit and variable costs £2.50 per unit??

A. 325 units per weekA. 325 units per week

B. 867 units per weekB. 867 units per week

C. 520 units per weekC. 520 units per week

To find Break even level of output the formula is

fixed costs divided by contribution per unit.

To find contribution take VC per unit from Revenue per unit

Try Again

Correct

To find Break even level of output the formula is

fixed costs divided by contribution per unit.

To find contribution take VC per unit from Revenue per unit

Try Again

Question 4.Question 4.

A firm has an output level of 870 units per A firm has an output level of 870 units per week, and a break even output level of 650 week, and a break even output level of 650 units per week. What is the firms margin of units per week. What is the firms margin of safety?safety?

A. nil units per weekA. nil units per week

B. 1520 units per weekB. 1520 units per week

C. 220 units per weekC. 220 units per week

Margin of safety equals

Output - break even output

Margin of safety equals

Output - break even output

Correct

Question 5.Question 5.

Which of the following defines fixed costs?Which of the following defines fixed costs?

A. Costs that vary directly in proportion to A. Costs that vary directly in proportion to output.output.

B. Costs that remain the same, in the short run B. Costs that remain the same, in the short run no matter what the output level.no matter what the output level.

Fixed costs always remain the same in the short run.

Correct

Question 6.Question 6.

What will be a firms losses given the What will be a firms losses given the following situation. Output 1600 units, following situation. Output 1600 units, contribution £2.50 unit, break even point contribution £2.50 unit, break even point 2000 units2000 units

A. £1000 lossA. £1000 loss

B. £4000 lossB. £4000 loss

C. £5000 lossC. £5000 loss

Correct

To find losses

Take output from break even output and multiply the answer by contribution per unit.

To find losses

Take output from break even output and multiply the answer by contribution per unit.

Question 7.Question 7.

Which of the following holds true in the long Which of the following holds true in the long run?run?

A. Variable costs always fall.A. Variable costs always fall.

B. Fixed costs become variable.B. Fixed costs become variable.

Diseconomies of scale can cause variable costs per unit to rise.

Correct. The long run is defined as when fixed costs become variable

Question 8.Question 8.

Given the following what will the firms profits Given the following what will the firms profits per year be? Fixed costs £6000 per week, per year be? Fixed costs £6000 per week, sales 4,000 per week, revenue per unit £10, sales 4,000 per week, revenue per unit £10, variable costs per unit £7.50.variable costs per unit £7.50.

A. £4,000A. £4,000

B. £208,000B. £208,000

C. £32,000C. £32,000

To find profit.

First calculate contribution per unit

Then find break even point

Then find margin of safety

Finally multiply margin of safety by contribution.

Correct. To find profit you.

First calculated contribution per unit

Then found break even point

Then found margin of safety

and finally multiplied margin of safety by contribution

To find profit.

First calculate contribution per unit

Then find break even point

Then find margin of safety

Finally multiply margin of safety by contribution

Question 9.Question 9.

Which of the following is a weakness with Which of the following is a weakness with break even analysis?break even analysis?

A. It ignores overhead costsA. It ignores overhead costs

B. It does not allow for costs of production B. It does not allow for costs of production rising with outputrising with output

C. It does not allow for economies of scaleC. It does not allow for economies of scale

Overheads are part of fixed costs

Variable costs allow for this

Correct To allow for economies of scale the fixed costs line should be a convex curve.

Question 10.Question 10.A firm increases sales from, 1,200 units per A firm increases sales from, 1,200 units per

month to 1,700 units per month. Variable month to 1,700 units per month. Variable costs are £4.00 per unit, fixed costs are costs are £4.00 per unit, fixed costs are £3,000 per month and revenue is £8.00 per £3,000 per month and revenue is £8.00 per unit. How much do profits increase by?unit. How much do profits increase by?

A. £4,000 per monthA. £4,000 per month

B. £6,800 per monthB. £6,800 per month

C. £2,000 per monthC. £2,000 per month

Wrong. Calculate contribution, and multiply by the increase in sales.

For a full break down of figures try calculating break even point.

Wrong. Calculate contribution, and multiply by the increase in sales.

For a full break down of figures try calculating break even point.

Correct. You calculated contribution, and multiplied by the increase in sales.

You have now completed the test. For further

more detailed revision please use the case studies on the ALoA web site

www.aloa.co.uk