IB Business Management SL 3.3 Costs and Revenues Question Bank

Apply cost and revenue concepts to calculate contribution, break-even and business implications in IB Business Management SL.

[Maximum number: 2]

Suparman Fish ( SF )
Gepa Suparman owns and operates four fishing boats in Indonesia. There is a growing demand for canned (tinned) food, including cans of fish. Gepa wants to enter the secondary sector by opening a small factory producing cans of fish.
Gepa's business will be called Suparman Fish ( S F ) and will be a private limited company. Gepa will own all of the shares. The factory will be located in a village three miles from the harbour. Because unemployment is high in the village, Gepa should easily find workers for the new factory. In addition to the manager's salary, workers' wages, and the cost of fish, supplies, and cans, S F will have the semi-variable cost of electricity.
Gepa has prepared a four-month cash-flow forecast based on the following information:
- opening balance month 1: $\$15000$ .
- month 1 : sales revenue of $\$1000,$ increasing by 20 % per month.
- manager's salary: $\$300$ per month.
- workers' wages: $\$175$ per worker per month.

Table for Question 3.3 Costs and revenues question 1 — IB Business Management SL

- variable costs (fish, supplies, and cans) are equal to 40 % of sales revenue.
- semi-variable cost of electricity: fixed cost of $\$100$ per month, plus a variable cost of $\$0.10$ per kilowatt hour (kwh). Month 1 usage: 100 kwh , increasing by 10 % each month.

Although S F would create several jobs in the village, many residents are not happy about the new factory. The new factory would use chemicals, which cause pollution. Residents are concerned about the unpleasant smells from the factory. A representative from the local employment office is concerned whether Gepa's factory will provide a safe working environment.

Explain why electricity is a semi-variable cost for S F.

(b) Explain why electricity is a semi-variable cost for SF.

Semi-variable costs have characteristics of both fixed and variable costs. S F has to pay a fixed monthly rate of $\$100,$ which is a fixed-cost characteristic: this $\$100$ must be paid every month regardless of output. S F must also pay $\$0.10$ for each kilowatt hour, which is a variable-cost component: the amount of electricity usage (and, thus, the cost) will vary according to output.

Candidates are not expected to word their explanation exactly as above. Be attentive for candidates explaining variable costs rather than semi-variable. If they define variable cost (rather than using it as a contradistinction) award [0 marks].

Award [1 mark] for an explanation that conveys knowledge and understanding of semi-variable costs (explanation but no application to the stimulus).

Award [2 marks] for an explanation of how electricity is a semi-variable cost for S F (explanation with application to the stimulus). For [2 marks] candidates must convey the idea (though they do not have to use the exact wording) of varying according to output.

[Maximum number: 2]

HSM Bakery Ltd. (HSM)

HSM Bakery Ltd. (HSM), a privately held company, produces baked goods (bread, cakes, and cookies), which are sold to shops.

In recent years, HSM has broadened its target market by producing a range of gluten-free cakes.

Using Figure 3 and Figure 4, comment on the change in HSM's sales revenue from 2023 to 2024.

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Covered syllabus points

3.3 Costs and revenues question 1

3.3 Costs and revenues question 2