94 exam-style questions on Break-even analysis — topic 5.5 of Operations management in the IB Business Management syllabus — with answers and explanations. Samples below; the full set is free with an account.
A firm sells its product for 40, with variable costs of 24 per unit and fixed costs of 12000. Calculate the break-even output in units.
Answer: 750 units
Contribution = 40 − 24 = 16; break-even = 12000 ÷ 16 = 750 units. A common error is dividing fixed costs by the selling price (12000 ÷ 40 = 300).
A firm has fixed costs of 20000, sells at 50 per unit and has variable costs of 30 per unit. It currently sells 1500 units. Calculate its total profit.
Answer: 10000
Contribution per unit = 50 − 30 = 20; total contribution = 20 × 1500 = 30000; profit = total contribution − fixed costs = 30000 − 20000 = 10000.
Fixed costs are 6000, the selling price is 20 and variable cost is 12 per unit. If the selling price rises to 24 (costs unchanged), determine what happens to the break-even quantity.
Answer: It falls from 750 to 500 units
Old contribution = 20 − 12 = 8, break-even = 6000 ÷ 8 = 750; new contribution = 24 − 12 = 12, break-even = 6000 ÷ 12 = 500. A higher price raises contribution and lowers break-even.
Explain a key limitation of break-even analysis as a decision-making tool.
Answer: It assumes price and unit costs stay constant
Break-even assumes constant prices and unit costs and that all output is sold, which is unrealistic; discounts, economies of scale and unsold stock all break these assumptions.
A business has actual output of 1200 units and a break-even quantity of 800 units, with a contribution per unit of 5. Calculate its profit at the current level of output.
Answer: 2000
Profit = margin of safety × contribution per unit = (1200 − 800) × 5 = 400 × 5 = 2000. Beyond break-even, every unit's contribution becomes profit.
On a break-even chart, the vertical gap between the total revenue line and the total cost line at an output above the break-even point represents:
Answer: the profit earned at that level of output
Above break-even the lines have already crossed, so what separates them is what remains after all costs. The margin of safety is a horizontal distance along the output axis, and total contribution is measured from the variable cost line, not the total cost line.
That was 6 of 94 Break-even analysis questions.
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94 Break-even analysis questions — free with an account. Spaced repetition, streaks and full exam simulations included.
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