Break-Even (OCR GCSE Business): Exam Questions

The Sea View Hotel

The Sea View Hotel is a profitable hotel located near the coast. Anika and Charlie own the hotel in a business partnership. They are now considering opening a second hotel in a town further along the coast. It would cost them £1.5 million to buy the property and £0.5 million for redecoration.

To fund the £2 million expansion, the partners are considering getting a bank loan or accepting a new partner into the business. The partnership already has one bank loan but has worked out it can afford a second loan as long as the cost of borrowing does not rise too much.

If Anika and Charlie decide to take on a new partner, they would like to ask Finley, a friend of Anika’s who has just returned to the UK from travelling around the world. Finley is currently unemployed but is a keen photographer and environmental campaigner.

Anika has forecasted the following revenues and costs for the proposed 25-room hotel:

• selling price: £100 a day per room

• fixed costs: £6300 per week

• variable costs: £40 a day per room.

MD Sports Clinic

Martina Doyle currently works for the National Health Service (NHS). She has total savings of just over £5000 in her bank account. Martina is planning to leave the NHS and start up a private sports injury clinic. She intends to call her new business ‘MD Sports Clinic’.

Martina wishes to rent a property for her new business and expects to pay rent each month. She wants to take a monthly income from the business. She also wants to employ a part time receptionist.

Martina needs to buy some equipment to set up MD Sports Clinic. She has estimated the following figures for MD Sports Clinic’s first month of trading:

• fixed costs of £6000

• variable costs of £5 per session

• revenue of £30 per session.

Glorious Kitchens Ltd

Glorious Kitchens (GK) is a private limited company based in Brighton. The company makes and fits high-quality, luxury wooden kitchens throughout the south-east of England. Its most popular range is the Deluxe.

The average price of a Deluxe kitchen is £15 000 including fitting. GK calculates its fixed costs for the year to be £250 000 and its variable costs for the Deluxe to be £6380, which means they need to sell 29 kitchens to break even.

GK is concerned about the future economic climate and its possible impact on the company’s sales. It is predicted that there will be a fall in consumer incomes in the south-east of England until 2025. Unemployment in the south-east of England is forecast to follow the trend shown in Table 1.

Table 1

Financial data for GK at the end of 2022 is shown in Table 2.

Table 2

Luxury Cushions

Elizabeth owns a small business, Luxury Cushions (LC), making and selling quality cushions. She sells these to retail shops and direct to the public over the internet. When she first started, Elizabeth used social media to get herself well known. Her business really became successful when she sent some cushions to celebrities and they posted them on their Instagram accounts. Elizabeth regularly communicates to her 10000 Instagram followers when she has new designs to sell.

In 2019 LC earned £150000 in revenue and had a gross profit of £118000 and a net profit of £56800. Elizabeth has provided the following financial information:

Table 1 — Financial data for LC

Elizabeth has the opportunity to expand her business by taking over a competitor and moving into larger premises. One of her customers suggested that she could use crowdfunding to raise the £30000 she needs. However, Elizabeth thinks that she might be better using a bank loan. Even though she would need to pay interest on the loan, her stable cash flow forecast shows she should be able to afford it.