BREAK EVEN

PRACTICE
QUESTIONS
Y12 A Level Business ESK 2020-21
 TASK 1
Surrey Air Services Ltd ("SAS) is a new business that will offer helicopter flights from its base at Redhill Aerodrome.
The entrepreneur behind SAS – Sheena Patel – has put together some budgeted financial information as part of her start-
up business plan.
Using the financial information provided below, answer the questions that follow.
Selected Financial Information:
Fixed costs per year
 Helicopter leasing & maintenance: £250,000
 Staff wages & salaries: £125,000
 Marketing: £60,000
 Aerodrome costs: £125,000

Expected demand revenue and costs per helicopter flight:

 Average price per flight £2,850
 Variable cost per flight £350
 Expected number of flights per month 35
TASK 1
Using the information, calculate:
(1) Total fixed costs for SAS in the first year
(2) Contribution per flight
(3) The break-even output number of flights for Year 1
(4) The margin of safety (flights) for Year 1
(5) The expected profit or loss for SAS in Year 1
[remember to show your calculation workings]
TASK 2
1. The break even level of output for a firm is 800 units and it is currently making 950 units. What is its margin of
safety?

2.What would happen to the break even point for a business if

 Price fell
 Insurance premiums were cut by 5%
 Rents were increased by 10%

3.Calculate the level of profit

 TR = £2.3m and TC = £1.9m
 TR = £260,000; FC = £120,000; TVC = £130,000
 Price = £2.00; Sales = 6,000; FC = £5,000, VC per unit = 80p
TASK 2
4. FC = £4,000; VC per sale = £1,50; Selling price = £4.00
 Calculate the break even sales
 Calculate the revenue earned at the break even sales
 If sales are 1850 units, how much is the margin of safety
 How much profit is generated at sales of 1850 units
 FC rise to £5,000 – how much is the new break even level of output
 Sales remain at 1850 – how much of a profit/loss is being made
TASK 2
5.A company manufacturing jackets has annual fixed costs of £100,000. It sells the jackets for
£60 and variable costs of making each jacket is £20.
 How much does each jacket contribute towards the fixed costs?
 How many jackets does the company have to sell to break even?
 What are the revenue and costs at this break even sales point?
 If the company manufactures 3200 jackets, how much is the margin of safety?
 At a sales level of 3200, calculate the amount of profit made
TASK 3

Finally, draw a break even chart

using the information above.