Practice IB Business Management Topic 5.5 Break-even Analysis with authentic exam-style questions for both SL and HL students. This question bank focuses on the exact syllabus content for 5.5 Break-even Analysis and mirrors Paper 1, 2, 3 style where relevant.
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BiteFresh Ltd.
BiteFresh Ltd. is a company that produces ready-made healthy meals for supermarkets and gyms. Due to growing demand, the business is planning to open a second production facility. Management is deciding between two locations: one in an urban area with higher rent but closer to suppliers and customers, and another in a rural area with lower operating costs but limited infrastructure.
The finance team has produced updated financial data to help evaluate the company's performance and support the location decision.
Table 1: Financial data for BiteFresh Ltd.
| Item | Amount ($) |
|---|---|
| Revenue | 400,000 |
| Cost of sales | 220,000 |
| Expenses | 130,000 |
| Fixed costs (per month) | 12,000 |
| Selling price per unit | 10 |
| Variable cost per unit | 4 |
| Current assets | 70,000 |
| Current liabilities | 35,000 |
Calculate the net profit for the business.
Show all your working.
Calculate the net profit margin.
Show all your working.
Calculate the current ratio.
Show all your working.
Calculate the break-even output per month.
Show all your working.
Outline one factor that BiteFresh Ltd. should consider when choosing between the urban and rural location options.
FrostFuel Ltd.
FrostFuel Ltd. is a company that produces natural, energy-boosting frozen fruit smoothies. As part of its launch strategy for a new tropical flavour line, the marketing team conducted primary market research using focus groups and in-store product sampling. Based on the results, they developed a marketing plan targeting university students and young professionals in urban areas.
The operations team is choosing between two potential factory sites:
To assess the product's financial viability, the finance team produced the following break-even data based on estimated sales and production costs.
Table 1: Break-even data for FrostFuel Ltd.'s new tropical smoothie
| Item | Value |
|---|---|
| Selling price (SP) | $22.72 per unit |
| Variable cost (VC) | $9.09 per unit |
| Fixed costs (FC) | $30,000 per period |
Output is measured in units per period; costs/revenue are measured in $ per period.
Using the break-even data in Table 1, calculate the break-even level of output and state what it represents.
Explain one reason why market research was important before launching the new product.
Outline one factor from the information given that FrostFuel Ltd. should consider when choosing between Location A and Location B.
Explain one way a marketing plan supports a successful product launch.
Using the data provided, calculate the profit FrostFuel Ltd. would earn if it sells 10,000 units. Show all your working.
EcoCrate Ltd.
EcoCrate Ltd. manufactures eco-friendly modular furniture. Management is considering two options: buying prefabricated parts from a supplier (CTB) or making parts internally (CTM). They are also assessing lean production methods and ways to reorganize production internationally.
Table 1: Financial and Production Data for EcoCrate Ltd.
| Item | Amount |
|---|---|
| Fixed costs (in-house production) | $300,000 |
| Variable cost per unit (in-house) | $120 |
| Cost to buy (CTB) per unit from supplier | $160 |
| Selling price per unit | $250 |
| Expected sales volume | 5,000 units |
Additional notes:
Calculate EcoCrate Ltd.’s break-even quantity based on current in-house production costs.
Calculate the margin of safety in units based on expected sales.
Calculate the cost difference between Cost to Buy (CTB) and Cost to Make (CTM) at the expected sales volume.
Explain one effect of outsourcing production compared to insourcing.
Suggest one reason why labour turnover may have increased at EcoCrate Ltd.
Global Solar Solutions (GSS)
Three years ago, electrical engineer and entrepreneur Nadira Khan founded Global Solar Solutions (GSS) as a social enterprise in Morocco. Her goal was to provide affordable, modular solar lighting kits to off-grid rural communities. These kits, manufactured at GSS’s urban facility, include rechargeable LED lights and mobile charging ports. GSS reinvests 100% of profits into R&D and local hiring.
GSS operates in partnership with local NGOs and community councils. Its workforce includes 40 technicians and 20 community trainers who educate households about solar usage and maintenance. GSS applies lean production, Kaizen, and maintains a strong internal emphasis on quality control and after-sales support.
With reference to business management motivation theory, describe one need that GSS satisfies for rural households requiring solar lighting.
Explain one human resource challenge and one operations challenge GSS may face if it accepts the DRD expansion contract.
Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for GSS over the next five years.
GreenPulse Organics
GreenPulse Organics is a rapidly growing chain of organic grocery stores. The CEO, Amara, currently oversees four regional store managers. As the business has grown, Amara has maintained a centralized approach to decision-making, personally approving all major purchases and marketing strategies for every location.
Recently, the Store Manager (North) reported low morale among shop assistants, noting that while they are satisfied with their wages and working conditions, they feel their work lacks variety and they have little responsibility. To address this and improve operational efficiency, Amara is considering delayering parts of the organization and delegating more authority to her regional managers.
Figure 1: Organizational Chart for GreenPulse Organics
Table 1: Weekly Performance Data
| Metric | North Store | South Store |
|---|---|---|
| Total Weekly Revenue | $45,000 | $38,000 |
| Number of Employees (shop assistants shown in Figure 1) | 8 | 10 |
| Average Weekly Wage | $600 | $600 |
Using Figure 1, calculate the span of control (number of direct subordinates shown) for the Store Manager (North).
Explain one disadvantage of centralized decision-making for GreenPulse Organics as the business expands.
Using Herzberg’s Two-Factor Theory, identify one hygiene factor and one motivator for staff at GreenPulse Organics.
Explain one potential benefit of delegation for the Store Managers at GreenPulse Organics.
Using the data in Table 1, calculate the labor productivity for the South Store in $ per employee per week. Show all your working.