Revision NotesExam QuestionsFlashcardsPast Papers
IGCSEBusinessCambridge (CIE)Flashcards4. Operations Management4.4 Costs, Scale of Production & Break-even Analysis

4.4 Costs, Scale of Production & Break-even Analysis (Cambridge (CIE) IGCSE Business) Flashcards

Exam code: 0450, 0986 & 0264, 0774

1/33

0Still learning

Know0

Cards in this collection (33)

  • Define fixed costs.

    Fixed costs are costs that do not change as the level of output changes. These costs must be paid even if no output is produced.

  • Define variable costs.

    Variable costs are costs that are directly linked to output and change as production increases or decreases.

  • Define total costs.

    Total costs are the sum of fixed costs and variable costs.

  • Define average cost.

    Average cost is the typical cost of producing one unit of output, also known as unit cost.

  • Give two examples of fixed costs for a business?

    Examples of fixed costs for a business include rent and management salaries.

  • What happens to average total costs as a firm experiences economies of scale?

    As a firm experiences economies of scale, its average total costs decrease due to increased efficiencies from larger scale production.

  • True or False?

    Diseconomies of scale cause average total costs to decrease as a business grows.

    False.

    Diseconomies of scale cause average total costs to increase as a business grows due to inefficiencies.

  • How can a business use cost data to make better decisions?

    A business can use cost data to reduce costs, set prices, make production decisions, and choose business locations.

  • What is the formula for total costs?

    Total space costs space equals space Fixed space costs space plus space Variable space costs

  • Define economies of scale.

    Economies of scale are the efficiencies gained by increasing the scale of output, which lower a firm's average costs of production.

  • What is the main benefit of economies of scale for large firms?

    The main benefit is that large firms can lower their average costs of production compared to smaller firms.

  • True or False?

    Economies of scale lower both total and average costs for a firm as output increases.

    False.

    Economies of scale lower average (unit) costs, but total costs still increase as output rises.

  • Define diseconomies of scale.

    Diseconomies of scale occur when increasing the scale of output leads to a higher average cost per unit.

  • What is productive efficiency in the context of average costs?

    Productive efficiency is the level of output at which a firm's average costs are minimised.

  • True or False?

    Diseconomies of scale can occur if a business becomes too large and inefficient.

    True.

    If a business grows too large, it may become less efficient due to issues like poor communication or weak coordination, leading to higher average costs.

  • Define purchasing economy.

    A purchasing economy is a type of economy of scale where large firms buy raw materials in bulk and receive discounts, lowering their average costs.

  • How does a managerial economy benefit large firms?

    A managerial economy allows large firms to employ specialist managers who increase efficiency and reduce average costs.

  • Name two causes of diseconomies of scale.

    Two causes of diseconomies of scale are poor communication and weak coordination.

  • Define break-even point.

    The break-even point is the number of units that need to be sold for total costs to equal sales revenue.

  • Why is knowing the break-even point important for a business?

    Knowing the break-even point helps businesses understand the minimum level of sales or output needed to cover all costs, allowing managers to make informed decisions about pricing and production volumes.

  • Define sales revenue.

    Sales revenue is the money a business gains from selling its products, calculated as the number of items sold multiplied by the selling price.

  • What are the three main components needed to construct a break-even chart?

    To construct a break-even chart, a business needs to know the estimated fixed costs, variable costs, and sales revenue.

  • On a break-even chart, where do you find the break-even point?

    The break-even point is found where the revenue line crosses the total costs line on the break-even chart.

  • What is the formula to calculate the break-even point in units?

    Break minus even space point space equals space fraction numerator Fixed space costs over denominator Selling space price space minus space Variable space cost space per space unit end fraction

    or

    Break minus even space point space equals space fraction numerator Fixed space costs over denominator Contribution space per space unit end fraction

  • True or False?

    When calculating break-even output, you should always round down to the nearest unit.

    False.

    You should always round up the break-even point to the nearest whole unit.

  • Define margin of safety.

    Margin of safety is the difference between the quantity of sales and the break-even level of sales.

  • How does an increase in selling price affect the break-even point?

    An increase in selling price reduces the break-even point, meaning fewer units need to be sold to cover costs and become profitable.

  • How does a decrease in variable costs impact the break-even point and profit?

    A decrease in variable costs lowers the break-even point and increases the profit on each unit sold above break-even.

  • True or False?

    Increasing fixed costs will decrease the break-even point.

    False.

    Increasing fixed costs raises the break-even point, so more units must be sold to cover all costs.

  • What happens to profit per unit above the break-even point if the selling price decreases?

    If the selling price decreases, profit per unit above the break-even point is also reduced.

  • Why is break-even analysis less useful for businesses with many products?

    Break-even analysis is less useful for multi-product businesses because it is difficult to calculate a single break-even point that applies to products with different prices and profit margins.

  • True or False?

    Break-even analysis assumes that every unit produced will be sold.

    True.

    Break-even analysis does assume that all output is sold, which may not be realistic for every business.

  • How does break-even analysis support decision-making in a business?

    Break-even analysis helps businesses assess costs, set realistic sales targets, plan for profit, and communicate financial viability to stakeholders.

Previous:4.3 Sustainable Production of Goods and ServicesNext:4.5 Quality of Goods & Services

    1. 1.1 Business Activity

    2. 1.2 Economic Sectors

    3. 1.3 Enterprise, Business Growth & Size

    4. 1.4 Types of Business Organisation

    5. 1.5 Business Objectives & Stakeholder Objectives

    1. 2.1 Human Resource Management (HRM)

    2. 2.2 Organisation & Management

    3. 2.3 Methods of Communication

    4. 2.4 Motivating Employees

    1. 3.1 Marketing & the Market

    2. 3.2 Market Research

    3. 3.3 Marketing Mix

    4. 3.4 Legal Controls

    1. 4.1 Production of Goods & Services

    2. 4.2 Technology and the Production of Goods & Services

    3. 4.3 Sustainable Production of Goods and Services

    4. 4.4 Costs, Scale of Production & Break-even Analysis

    5. 4.5 Quality of Goods & Services

    6. 4.6 Location Decisions

    1. 5.1 Business Finance

    2. 5.2 Cash Flow Forecast

    3. 5.3 Profit & Loss

    4. 5.4 Statement of Financial Position

    5. 5.5 Analysis of Accounts

    1. 6.1 Economic Issues

    2. 6.2 Business & the International Economy

    3. 6.3 Business & the Environment

    4. 6.4 Business & Ethical Issues

    5. 6.5 Pressure Groups