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CAIE IGCSE Business Studies 4.4 Costs Scale of Production and Break Even Analysis Questions

Use this costs-and-break-even page to define cost terms, interpret break-even evidence and apply scale effects to decisions.

Syllabus
2027–2029
Course
Business 0264

Exam points

  • Define economies of scale as lower average costs from increased business size.
  • Classify fixed, variable, average or total costs using business examples.
  • Use break-even output or margin of safety to support production and pricing decisions.

Covered syllabus points

4.4.1—Identify and classify costs4.4.2—Economies and diseconomies of scale4.4.3—Break-even analysis

Question 1

[Maximum number: 4]

Tom started ALB 5 years ago making trainers (sneakers) out of sustainable materials such as wool. One of ALB's objectives is to protect the environment. As part of his research, Tom calculated some costs which he could use in his break-even analysis. An extract is shown in Figure 2.1. ALB uses retailers to distribute its products. Tom thinks a successful entrepreneur has to be a good manager.

Fig. 2.1

Fig. 2.1

Question (a)

(a)

Define 'variable costs'.

[ 2 ]

Question (b)

(b)

Identify two limitations of break-even analysis.

Limitation 1:

Limitation 2:

[ 2 ]

Question 2

[Maximum number: 4]

TBX manufactures high-quality steel which is used to build railways. The method of production used allows TBX to benefit from economies of scale. The business holds a high level of inventory including iron ore. The Managing Director knows business activity could have an impact on the environment and is considering ways the business can contribute to sustainable development.

Outline two possible economies of scale TBX might benefit from.

Economy of scale 1:
Economy of scale 2:

Question 3

[Maximum number: 2]

Nancy wants to be an entrepreneur. She has analysed market research data and decided to start up a book shop. Nancy has identified a suitable location and prepared a business plan. Nancy is calculating her total costs. She will use this information to help her complete a break-even chart as shown in Figure 2.1. Nancy is also considering using e-commerce.

Break-even chart for Nancy's new business

Break-even chart for Nancy's new business

Identify X and Y.

X:
Y:

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