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Producing or holding units without selling them does not create sales income."},{"text":"Units produced","correct":false,"explanation":"Production alone does not generate revenue because the goods may remain unsold. Revenue is earned from units sold to customers."},{"text":"Units remaining in stock","correct":false,"explanation":"Stock that remains unsold has not yet generated sales income. Revenue comes from units sold, not from inventory held by the business."},{"text":"Units returned by customers","correct":false,"explanation":"Returned goods usually reduce sales revenue rather than earn it. The relevant units are units sold and retained as completed sales."}]},{"id":"eaf37374-2143-42a9-a797-fe83f4510060","cardType":"cloze","points":null,"front":"Break-even occurs when [ ].","back":"Break-even occurs when total costs = total revenue.","mcqOptions":[{"text":"total costs = total revenue","correct":true,"explanation":"Break-even is the point where the money received from sales exactly covers all business costs, leaving neither a profit nor a loss."},{"text":"total costs = total profit","correct":false,"explanation":"Profit is what remains after costs are deducted from revenue, so it cannot normally equal total costs at break-even. The correct condition is when total costs equal total revenue."},{"text":"fixed costs = total revenue","correct":false,"explanation":"Revenue must cover both fixed and variable costs, not fixed costs alone. Break-even occurs when total costs equal total revenue."},{"text":"total variable costs = total revenue","correct":false,"explanation":"This ignores fixed costs, which still have to be paid. Break-even is reached when revenue covers fixed costs plus variable costs together."}]},{"id":"a1ff0b5e-f892-40a0-84df-d0e502d096bc","cardType":"basic","points":1,"front":"At break-even, what profit or loss is made?","back":"No profit and no loss.","mcqOptions":[{"text":"No profit and no loss.","correct":true,"explanation":"At break-even, total revenue exactly equals total costs. After all costs are paid, nothing remains as profit and no loss has been made."},{"text":"A small profit","correct":false,"explanation":"A profit means revenue is greater than total costs, which occurs after the break-even point. At break-even, the business makes no profit and no loss."},{"text":"A small loss","correct":false,"explanation":"A loss means total costs exceed revenue, which occurs below the break-even point. At break-even, revenue and costs are exactly equal."},{"text":"The maximum possible profit","correct":false,"explanation":"Maximum profit depends on the level of output and the relationship between revenue and costs. Break-even only identifies the point where profit is zero."}]},{"id":"61ce49df-9896-4b18-b3c6-056c25f2b1a1","cardType":"basic","points":1,"front":"What happens to fixed costs as output changes?","back":"They stay the same.","mcqOptions":[{"text":"They stay the same.","correct":true,"explanation":"Fixed costs do not change directly with output in the short term. The business pays the same total amount whether it produces more or fewer units."},{"text":"They rise with output.","correct":false,"explanation":"Costs that rise as production increases are variable costs. Fixed costs remain unchanged as output changes, within the relevant production range."},{"text":"They fall with output.","correct":false,"explanation":"Fixed costs do not automatically decrease when output changes. Their total stays the same, although fixed cost per unit may fall as output rises."},{"text":"They become zero at break-even.","correct":false,"explanation":"Fixed costs still exist at break-even and are included in total costs. Break-even means revenue covers all costs, not that fixed costs disappear."}]},{"id":"aeb79f5c-9a0f-48fa-b715-de704e0606ad","cardType":"basic","points":1,"front":"What happens to variable costs as output rises?","back":"They rise with output.","mcqOptions":[{"text":"They rise with output.","correct":true,"explanation":"Variable costs depend on the amount produced or sold, so producing more units requires more materials, labour, or other variable inputs."},{"text":"They stay the same.","correct":false,"explanation":"Costs that stay constant as output changes are fixed costs. Variable costs increase as more units are produced or sold."},{"text":"They fall to zero.","correct":false,"explanation":"Variable costs are linked to production, so they do not disappear when output rises. Higher output generally requires more variable inputs and greater total variable costs."},{"text":"They become fixed.","correct":false,"explanation":"Increasing output does not change the cost category. Variable costs continue to depend on output, unlike fixed costs, which remain constant in total."}]},{"id":"799e9c77-9b42-4b0e-bc34-e942c6964609","cardType":"cloze","points":null,"front":"Total variable costs = [ ].","back":"Total variable costs = variable cost per unit × quantity sold.","mcqOptions":[{"text":"variable cost per unit × quantity sold","correct":true,"explanation":"Each unit creates the same variable cost per unit in this calculation, so multiplying that amount by the quantity sold gives total variable costs."},{"text":"fixed cost per unit × quantity sold","correct":false,"explanation":"This uses a fixed-cost figure instead of the variable cost associated with each unit. Total variable costs use variable cost per unit multiplied by quantity sold."},{"text":"variable cost per unit + quantity sold","correct":false,"explanation":"Adding the figures does not calculate the cost of supplying every unit. Multiplication is needed to apply the per-unit cost to the quantity sold."},{"text":"selling price per unit × quantity sold","correct":false,"explanation":"This calculation gives total revenue, because it uses the selling price. Total variable costs require the variable cost per unit multiplied by quantity sold."}]},{"id":"48d0dfa0-f814-48ad-a623-a86c01630a15","cardType":"cloze","points":null,"front":"Total costs = [ ].","back":"Total costs = fixed costs + total variable costs.","mcqOptions":[{"text":"fixed costs + total variable costs","correct":true,"explanation":"Total costs combine costs that remain constant with costs that change as output changes. Adding fixed costs to total variable costs gives the complete cost figure."},{"text":"fixed costs - total variable costs","correct":false,"explanation":"Subtracting variable costs would understate the amount the business spends. Total costs include both categories, so they must be added together."},{"text":"fixed costs + total revenue","correct":false,"explanation":"Revenue is income from sales, not a cost. Total costs are calculated by combining fixed costs with total variable costs."},{"text":"total variable costs - fixed costs","correct":false,"explanation":"This reverses the relationship and can produce an unrealistically low or negative figure. Both cost categories contribute positively to total costs and must be added."}]},{"id":"9d899901-6c20-4c80-a5e7-f30fd57b3849","cardType":"cloze","points":null,"front":"Total revenue = [ ].","back":"Total revenue = selling price per unit × quantity sold.","mcqOptions":[{"text":"selling price per unit × quantity sold","correct":true,"explanation":"Each unit sold generates the selling price, so multiplying the price by the number of units sold calculates the business’s total revenue."},{"text":"variable cost per unit × quantity sold","correct":false,"explanation":"This calculates total variable costs rather than income from sales. Total revenue uses the selling price per unit multiplied by quantity sold."},{"text":"selling price per unit + quantity sold","correct":false,"explanation":"Adding price and quantity does not calculate income from all sales. The price must be multiplied by the number of units sold."},{"text":"selling price per unit × fixed costs","correct":false,"explanation":"Fixed costs are unrelated to the number of units sold and should not be used to calculate sales income. Revenue depends on price and quantity sold."}]},{"id":"2b1dc537-5135-4fc2-952e-fa80b153c35a","cardType":"basic","points":1,"front":"If total revenue is higher than total costs, what is made?","back":"A profit.","mcqOptions":[{"text":"A profit.","correct":true,"explanation":"When total revenue exceeds total costs, the business has more income than expenditure, so the difference is a profit."},{"text":"A loss.","correct":false,"explanation":"A loss occurs when total costs are higher than total revenue. Here, revenue is higher, so the correct result is a profit."},{"text":"A break-even result.","correct":false,"explanation":"Break-even means total revenue equals total costs, with neither a profit nor a loss. Higher revenue means the business makes a profit."},{"text":"A contribution.","correct":false,"explanation":"Contribution is the amount left after variable costs, but the overall result when revenue exceeds total costs is a profit."}]},{"id":"b83843ae-ad62-4516-b3a0-bbc77f4ac498","cardType":"basic","points":1,"front":"What does contribution from each unit cover before profit?","back":"Fixed costs.","mcqOptions":[{"text":"Fixed costs.","correct":true,"explanation":"Each unit’s contribution is used first to cover the business’s fixed costs. Only after all fixed costs are covered does the remaining contribution become profit."},{"text":"Variable costs","correct":false,"explanation":"Variable costs are deducted before contribution is calculated. Contribution is then used to cover fixed costs, not variable costs."},{"text":"Profit","correct":false,"explanation":"Profit is made only after the contribution from all units has covered fixed costs. It is not the first cost covered by each unit’s contribution."},{"text":"Revenue","correct":false,"explanation":"Revenue is the money received from sales, before costs are deducted. Contribution, after variable costs, covers fixed costs before profit is made."}]},{"id":"4a3f7296-35be-4811-8e82-673ab54521d4","cardType":"cloze","points":null,"front":"Contribution per unit = [ ].","back":"Contribution per unit = selling price per unit - variable cost per unit.","mcqOptions":[{"text":"selling price per unit - variable cost per unit","correct":true,"explanation":"Contribution per unit is the selling price left after paying the variable cost of that unit. This amount contributes towards fixed costs and then profit."},{"text":"selling price per unit + variable cost per unit","correct":false,"explanation":"Adding the variable cost to the selling price overstates the amount available to cover fixed costs. The variable cost must be subtracted instead."},{"text":"variable cost per unit - selling price per unit","correct":false,"explanation":"Reversing the subtraction produces a negative amount when the selling price exceeds variable cost. Contribution is selling price minus variable cost."},{"text":"fixed costs ÷ number of units","correct":false,"explanation":"Fixed costs are not used to calculate contribution per unit directly. Contribution compares the selling price with the variable cost per unit."}]},{"id":"e3c5c41f-0da0-48b4-b677-6a3dabe9eb01","cardType":"basic","points":2,"front":"A product sells for £10 with £6 variable cost. What is contribution per unit?","back":"£4 per unit.","mcqOptions":[{"text":"£4 per unit.","correct":true,"explanation":"Contribution per unit equals selling price minus variable cost: £10 - £6 = £4. Each unit therefore provides £4 towards fixed costs and profit."},{"text":"£16 per unit.","correct":false,"explanation":"This adds the selling price and variable cost rather than subtracting them. The correct contribution is £10 - £6, which equals £4 per unit."},{"text":"£10 per unit.","correct":false,"explanation":"The selling price is the amount received, not the contribution. After deducting the £6 variable cost, the contribution is £4 per unit."},{"text":"£6 per unit.","correct":false,"explanation":"The variable cost is the amount deducted from the selling price, not the contribution itself. £10 - £6 leaves a contribution of £4 per unit."}]},{"id":"8e742d76-f202-473a-827d-2615c4355fba","cardType":"cloze","points":null,"front":"Break-even quantity = [ ].","back":"Break-even quantity = fixed costs ÷ contribution per unit.","mcqOptions":[{"text":"fixed costs ÷ contribution per unit","correct":true,"explanation":"Break-even quantity is found by dividing total fixed costs by the contribution made by each unit. This identifies how many units are needed to cover fixed costs."},{"text":"fixed costs ÷ selling price per unit","correct":false,"explanation":"Using selling price ignores the variable cost incurred for each unit. Break-even quantity must use contribution per unit, which is selling price minus variable cost."},{"text":"contribution per unit ÷ fixed costs","correct":false,"explanation":"Reversing the division gives a value with no meaningful break-even quantity. Fixed costs must be divided by contribution per unit."},{"text":"fixed costs + contribution per unit","correct":false,"explanation":"Adding fixed costs and contribution does not calculate the number of units required. Break-even quantity requires fixed costs divided by contribution per unit."}]},{"id":"8fead85f-11eb-45ba-afa5-231af4ef2b35","cardType":"basic","points":2,"front":"Phone cases sell for £10, variable cost £6, fixed costs £2,000. What is break-even quantity?","back":"500 units.","mcqOptions":[{"text":"500 units.","correct":true,"explanation":"Contribution per case is £10 - £6 = £4. Dividing £2,000 fixed costs by £4 contribution gives 500 units to break even."},{"text":"200 units","correct":false,"explanation":"This divides fixed costs by the £10 selling price and ignores the £6 variable cost. Using the £4 contribution gives the correct answer of 500 units."},{"text":"333 units","correct":false,"explanation":"This uses the £6 variable cost as though it were contribution. Contribution is £4, so £2,000 ÷ £4 gives the correct quantity of 500 units."},{"text":"2,000 units","correct":false,"explanation":"This uses the fixed-cost figure as the quantity without dividing by contribution. The required calculation is £2,000 ÷ (£10 - £6) = 500 units."}]},{"id":"ed2d77b7-dcb0-4cf2-bba4-f683943b59e0","cardType":"basic","points":2,"front":"Why is fixed costs ÷ selling price not the break-even formula?","back":"Only contribution covers fixed costs, not the full price.","mcqOptions":[{"text":"Only contribution covers fixed costs, not the full price.","correct":true,"explanation":"Selling price includes the variable cost, so it cannot all be used to cover fixed costs. Only the remaining contribution after variable cost covers fixed costs."},{"text":"Only variable cost covers fixed costs, not the full price.","correct":false,"explanation":"Variable cost is paid from the selling price before contribution is calculated. The amount covering fixed costs is contribution, not variable cost."},{"text":"The full price covers fixed costs, not contribution.","correct":false,"explanation":"The full selling price is not available for fixed costs because variable cost must first be paid. Contribution, rather than the full price, covers fixed costs."},{"text":"Only profit covers fixed costs, not the full price.","correct":false,"explanation":"Profit is generated only after fixed costs have been covered. The amount covering fixed costs is contribution, which remains after variable costs are deducted."}]},{"id":"f24dd3b6-a129-48dc-a53b-949e35b74f02","cardType":"basic","points":1,"front":"If break-even quantity is 127.4 units, what should the business do?","back":"Round up to 128 units.","mcqOptions":[{"text":"Round up to 128 units.","correct":true,"explanation":"A business cannot sell 0.4 of a unit and must reach or exceed break-even. Rounding 127.4 up to 128 ensures fixed costs are fully covered."},{"text":"Round down to 127 units.","correct":false,"explanation":"Rounding down to 127 leaves the business below the calculated break-even quantity, so it would still make a small loss rather than break even."},{"text":"Round to the nearest whole number to 127 units.","correct":false,"explanation":"Rounding to the nearest whole number would produce 127, which is below the break-even requirement. The quantity must be rounded up to 128 units."},{"text":"Sell 127.4 units.","correct":false,"explanation":"Using 127.4 units is impractical because units cannot usually be sold fractionally, and selling only 127 units would not cover all fixed costs."}]},{"id":"7cbca201-ea6f-4a1b-9d0e-9c3362d45e5c","cardType":"basic","points":2,"front":"If selling price is equal to or below variable cost, what happens to break-even?","back":"The business will not break even unless price or costs change.","mcqOptions":[{"text":"The business will not break even unless price or costs change.","correct":true,"explanation":"Break-even requires a positive contribution per unit to cover fixed costs. If price does not exceed variable cost, each sale contributes nothing or increases the loss."},{"text":"The business will break even sooner as sales volume increases.","correct":false,"explanation":"This confuses higher sales volume with positive contribution. Selling more cannot cover fixed costs when each unit contributes nothing or makes a loss, so the business will not break even."},{"text":"The business will still break even once fixed costs are paid.","correct":false,"explanation":"This assumes fixed costs alone determine break-even. The business also needs a positive contribution per unit, so it will not break even unless price rises or costs fall."},{"text":"The business will break even immediately because its price is competitive.","correct":false,"explanation":"A lower selling price does not guarantee break-even. When price is equal to or below variable cost, there is no positive contribution to cover fixed costs."}]},{"id":"b663a00c-11f0-489f-bd2f-c491e1bdbf9a","cardType":"basic","points":1,"front":"On a break-even chart, where is the break-even point?","back":"Where total revenue crosses total costs.","mcqOptions":[{"text":"Where total revenue crosses total costs.","correct":true,"explanation":"At this intersection, sales revenue exactly equals the sum of fixed and variable costs. The business therefore makes neither a profit nor a loss."},{"text":"Where total revenue crosses variable costs.","correct":false,"explanation":"This intersection ignores fixed costs, which must also be covered before break-even is achieved. Break-even occurs where total revenue crosses total costs."},{"text":"Where total revenue reaches fixed costs.","correct":false,"explanation":"Covering fixed costs alone does not show that all variable costs have been paid. Break-even is located where the total revenue and total cost lines cross."},{"text":"Where total costs cross the vertical axis.","correct":false,"explanation":"The point where total costs begin does not represent equality between revenue and costs. Break-even occurs at the intersection of the total revenue and total cost lines."}]},{"id":"4d79f128-0384-4318-8877-f883c23b12ca","cardType":"basic","points":2,"front":"How can a lower price affect break-even quantity?","back":"It lowers contribution, so more units are needed.","mcqOptions":[{"text":"It lowers contribution, so more units are needed.","correct":true,"explanation":"Contribution per unit equals selling price minus variable cost. Reducing the price narrows this difference, so more units must be sold to cover fixed costs."},{"text":"It raises contribution, so fewer units are needed.","correct":false,"explanation":"This reverses the effect of a price reduction. With variable cost unchanged, a lower price reduces contribution per unit, meaning more units are required to break even."},{"text":"It raises demand, so fewer units are needed.","correct":false,"explanation":"Break-even quantity is not determined by demand alone. A lower price reduces contribution per unit, so the business must sell more units to cover fixed costs."},{"text":"It leaves contribution unchanged, so the same units are needed.","correct":false,"explanation":"Changing the selling price affects contribution even if costs remain unchanged. A lower contribution per unit increases, rather than leaves unchanged, the break-even quantity."}]},{"id":"9825145d-f3af-4185-b757-07bce5456cee","cardType":"basic","points":2,"front":"What key limitation makes break-even analysis less reliable?","back":"It is based on estimates that may change.","mcqOptions":[{"text":"It is based on estimates that may change.","correct":true,"explanation":"Forecasts of prices, costs and sales volumes may prove inaccurate or change over time. This means the calculated break-even point may not match the actual outcome."},{"text":"It is based on guaranteed figures that cannot change.","correct":false,"explanation":"Break-even analysis relies on forecasts rather than certain future figures. Because prices, costs and demand can change, its calculated result is not guaranteed to remain accurate."},{"text":"It is based on qualitative factors that are always included.","correct":false,"explanation":"Qualitative influences such as customer reactions and competitor behaviour are generally excluded from the calculation. Break-even is less reliable because its numerical estimates may change."},{"text":"It is based on exact forecasts that always prove correct.","correct":false,"explanation":"Break-even analysis does not ensure that predictions become accurate. Its main limitation is dependence on estimated prices, costs and sales volumes that may later change."}]}]}],"examCountdown":{"examDate":"2027-05-12","paperLabel":"Paper 1"},"heading":"Break-even","title":"Break-even Flashcards","topbar":{"backHref":"/gcse/business/ocr/flashcards"},"topicSidebar":"$L37"}]}],"topicId":"69b90b66-3f03-5160-97c9-5a55f2c73e7d","walled":"$L38"}],"$L39","$L3a"]