Section 4

Operations management 18 Costs, scale of production

and break-even analysis

Worksheet 20: Break-even

Scenario
Donald Veezer is an entrepreneur who has decided to sell high quality tweezers to the cosmetics
market. After some research, he has come up with the following costs:
(all figures are in $)
Rent/month 1 650.00
Packaging per pair of tweezers 1.50
Salaries/month 10 000.00
Production wages/pair of tweezers 0.50
Loan repayments/month 600.00
Raw materials/pair of tweezers 3.00
Telephone/month 150.00
Office supplies/month 100.00
Donald plans to sell the tweezers for $10 per unit.

Task 1
Using a textbook or other source of reference as necessary, find and write down the definitions for:
a) Fixed costs __________________________________________________________________
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b) Variable costs ________________________________________________________________
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c) Total costs __________________________________________________________________
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d) Total revenue ________________________________________________________________
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e) Margin of safety ______________________________________________________________
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Cambridge IGCSE Business Studies Teacher’s CD © Hodder & Stoughton Limited 2013 1/3
 Section 4
Operations management 18 Costs, scale of production
and break-even analysis
Task 2
Using Donald Veezer’s Tweezers cost information, split his costs into fixed and variable costs.

Fixed costs Variable costs

Task 3
Using the figures from the statement construct a break-even table using the Output/Sales figures
0, 1000, 2000, 3000, 4000, 5000.

Output/Sales 0 1000 2000 3000 4000 5000

Fixed cost
Variable cost
Total cost
Total revenue

Cambridge IGCSE Business Studies Teacher’s CD © Hodder & Stoughton Limited 2013 2/3
 Section 4
Operations management 18 Costs, scale of production
and break-even analysis

Task 4
Construct a break-even graph. Plotting only lines for fixed costs, total cost and total revenue.

Task 5
Using the mathematical equation below for break-even, work out the number of units to be sold in
order to break-even. (Show all your workings.)
Fixed costs
Formula =
Selling price  Variable cost per unit
(Contribution)
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Cambridge IGCSE Business Studies Teacher’s CD © Hodder & Stoughton Limited 2013 3/3