Use contribution to calculate break-even output, analysing how selling price or variable-cost changes affect contribution, costs, output and business risk.
Sources for use with Extract A Bee Hive Candles US-based business, Bee Hive Candles (BHC) produces candles made from 100% pure beeswax. All candles are handmade using beeswax from US bees. Jennifer Wesolowski started the business in 2000, using personal savings. She decided to change from making candles as a hobby to setting it up as a business. A wide range of candles are offered but by using 100% beeswax, all candles are environmentally friendly. Unlike typical paraffin candles, they are biodegradable and produce no harmful toxins. They burn for longer, meaning better value for money. Although still a small business, BHC is growing. This is due to increasing consumer awareness of environmental issues and positive feedback on social media platforms. Jennifer remains dedicated to making quality candles and offering outstanding customer service. Newsletters are emailed to existing customers to advise of new products and offers. BHC charges $9.95 to send its candles to customers all over the US but at the moment does not accept orders from outside the US. Prices of the candles range from $6.95 to over $100 for a large pack of candles. The best-selling product is the pillar candle, priced at $17.95. It is popular because of its relatively low price and burns for approximately 50 hours. Extract B Candle sales in the US – some figures • The US has the largest share of customers buying candles in the world. • In the US 35% of all candles are sold online and this is increasing. • Beeswax candles account for only 2% of all candle sales in the US market; this figure is increasing. • Paraffin candles are currently the most popular type of candle, with nearly 40% of the market. This is followed by soy wax, palm wax and beeswax.
Extract A Bee Hive Candles US-based business, Bee Hive Candles (BHC) produces candles made from 100% pure beeswax. All candles are handmade using beeswax from US bees. Jennifer Wesolowski started the business in 2000, using personal savings. She decided to change from making candles as a hobby to setting it up as a business. A wide range of candles are offered but by using 100% beeswax, all candles are environmentally friendly. Unlike typical paraffin candles, they are biodegradable and produce no harmful toxins. They burn for longer, meaning better value for money. Although still a small business, BHC is growing. This is due to increasing consumer awareness of environmental issues and positive feedback on social media platforms. Jennifer remains dedicated to making quality candles and offering outstanding customer service. Newsletters are emailed to existing customers to advise of new products and offers. BHC charges $9.95 to send its candles to customers all over the US but at the moment does not accept orders from outside the US. Prices of the candles range from $6.95 to over $100 for a large pack of candles. The best-selling product is the pillar candle, priced at $17.95. It is popular because of its relatively low price and burns for approximately 50 hours.
The variable cost of the pillar candle for Bee Hive Candles (BHC) has increased from
$4.70 to $5.50.
Using the data in Extract A, explain one way the change in the contribution of the
pillar candle may affect BHC's break-even point.
Knowledge 1, Application 2, Analysis 1
Quantitative skills assessed:
QS5: Calculate cost, revenue, profit and break-even
Knowledge
1 mark for identifying a way, e.g.
Application
Up to 2 marks for contextualised answers, e.g.
- At the lower variable cost, contribution was
$17.95 - $4.70 = $13.25 (1)
- At the new/higher variable cost of $5.50, a pillar candle
contributes $0.80 less OR the new contribution is $12.45 (1)
Analysis
1 mark for developing the impact, e.g.
- As each pillar candle contributes a lower proportion of the selling price towards paying off the fixed costs, a higher quantity of sales will be needed to break-even (1)