1.3.2d Interpreting break-even diagrams Quiz: Pearson Edexcel Business, Unit 3

The 20 questions

1. On a break-even diagram, what happens to the break-even point if fixed costs rise?

   • It moves to a higher output level
   • It moves to a lower output level
   • It stays exactly where it was before the rise
   • It disappears from the diagram completely

2. On a break-even diagram, what happens to the break-even point if the selling price rises?

   • It moves only if variable costs also rise
   • It moves to a higher output level
   • It stays exactly where it was before the increase
   • It moves to a lower output level

3. On a break-even diagram, the area above the break-even point and below the revenue line represents:

   • Loss
   • Profit
   • Variable costs
   • Fixed costs

4. On a break-even diagram, the area where total costs are above total revenue, to the left of break-even, represents:

   • A loss
   • A profit
   • The selling price
   • The margin of safety

5. What does a steeper total revenue line on a break-even diagram suggest?

   • A higher fixed cost that must be paid regardless of output
   • A higher selling price or a larger quantity sold per period
   • A lower variable cost that is always fixed in the short run
   • A lower number of units that the business is able to produce

6. If variable costs per unit rise on a break-even diagram, what happens to the total cost line?

   • It becomes a vertical line
   • It moves down to the horizontal axis
   • It becomes flatter
   • It becomes steeper

7. What does the point where the total revenue and total cost lines cross on a break-even diagram show?

   • The point at which the business pays no tax
   • The break-even level of output
   • The maximum output the factory can produce each day
   • The fixed cost of the business at zero output

8. A business's break-even diagram shows its current sales well to the right of break-even. What does this suggest?

   • A large margin of safety and a likely profit
   • A break-even point above current sales
   • A fixed cost that has fallen to zero
   • A large loss and no margin of safety

9. Which change on a break-even diagram would most likely reduce the margin of safety?

   • A fall in the price of a rival that does not affect this business
   • A rise in sales that takes the business further above break-even
   • A rise in the number of staff who work on the sales floor
   • A fall in sales that moves the business's output towards break-even

10. On a break-even diagram, a fall in variable costs per unit causes which change to the total cost line?

    • It moves upward by the amount of fixed costs
    • It becomes horizontal at the price level
    • It becomes flatter
    • It becomes steeper

11. What does a diagram that shows a loss at low output tell a business?

    • It must sell beyond break-even to cover all of its costs
    • It should close because it can never break even at any output
    • It can ignore fixed costs because they are not shown on the diagram
    • It has an unlimited margin of safety from the start of trading

12. Which of these is the best reason a business might use a break-even diagram?

    • To calculate the wages paid to all of its staff each month
    • To record the tax the business has paid to the government
    • To list the names of all its suppliers and their contact details
    • To see how changes in price, costs or sales affect profit or loss

13. On a break-even diagram, the break-even point shifts to the right when:

    • Selling price rises
    • Output is reduced below the current level
    • Variable costs per unit fall
    • Fixed costs rise

14. What is the effect on the margin of safety if the break-even point moves to a higher output?

    • The margin of safety is unaffected because actual sales are unchanged
    • The margin of safety becomes equal to total revenue for the year
    • The margin of safety falls for a given level of actual sales
    • The margin of safety rises for the same level of actual sales

15. Why must a break-even diagram be interpreted with care?

    • Because it always shows the exact profit of a business for the whole year
    • Because it includes every cost that a business might ever incur in future
    • Because it is only accurate for businesses that sell more than a million units
    • Because it assumes that prices and costs stay constant over the range shown

16. A break-even diagram is drawn with output on the horizontal axis. What is measured on the vertical axis?

    • The number of employees working in the business
    • Money, such as revenue and costs
    • The number of years the business has traded
    • The number of customers who visit the premises each day

17. If a business raises its price and sales stay the same, what happens to its profit?

    • Profit becomes zero because the business has to pay more tax
    • Profit is unaffected because fixed costs change with the price
    • Profit falls because each unit now brings in less revenue
    • Profit rises because each unit now brings in more revenue

18. A break-even diagram shows a business making a profit once sales pass 1,200 units. What does 1,200 units represent?

    • The break-even level of output
    • The number of units the business has sold since it first opened
    • The number of units needed to pay the owner's personal salary
    • The maximum capacity of the business's factory each month

19. On a break-even diagram, what happens to the break-even point if variable costs per unit rise?

    • It moves to a lower output level
    • It moves to a higher output level
    • It disappears from the diagram completely
    • It stays exactly where it was before the rise

20. On a break-even diagram, the vertical distance between total revenue and total cost at a given output shows:

    • The selling price of one unit at that output
    • The number of units needed to break even
    • The fixed cost at that level of output
    • The profit or loss at that level of output

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