Questions
Question 1
AquaMug Ltd (AML) manufactures reusable drinkware. AML is launching a new insulated cup, Nimbus.
Table 1: Unit cost and price for Nimbus (all figures in £)
Figure 1 shows a break-even chart for an unrelated product.
Explain the term margin of safety in break-even analysis.
Using Table 1, calculate for Nimbus: (i) the contribution per unit and (ii) the break-even quantity. Show all your working.
Comment on the effect on the break-even quantity if the variable cost increases by £1 per unit, with the selling price unchanged. No recalculation required.
Using Figure 1, at 50 units of output, identify which statement is correct and justify your answer briefly.
Statement 1: “The distance between c and d shows fixed costs.”
Statement 2: “The distance between c and e shows total contribution.”