Explain four ways the break-even chart in Appendix 3 might be helpful to SSE.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2023). The mark or mark type is shown in brackets.

1. [1] Shows the total costs – is $45000 per week / shows the total revenue – is $50000 per week / shows fixed costs – is $15000 per week
2. [1] Shows the break-even output – that SSE needs to sell 750 helmets per week
3. [1] Shows the margin of safety – shows that 250 helmets are predicted to be sold above the break-even output
4. [1] Helps in decision-making – whether to increase or decrease price from $50
5. [1] Show the impact of changes in costs – if fixed cost increased from $15000
6. [1] Shows the areas of profit or loss – managers at SSE can read off the expected profit at maximum output of 1000 helmets per week
7. [1] Shows they make a profit at maximum output – of $5000 per week
8. [1] Whether or not to go ahead and produce the new product
9. [1] For example: It shows the break-even output per week for SSE's new product (1) at 750 helmets (app).
10. [App] Application could include: public limited company; playing cricket; new factory abroad; children's cricket helmets; figures from chart e.g. total costs of $45000; total revenue of $50000; fixed costs are $15000; margin of safety is 250 units; break-even output is 750 units.
11. [Depreciation] Export of children's cricket helmets will appear to be cheaper in foreign countries – increases competitiveness – increases sales/revenue
12. [Depreciation] Imports of raw materials to produce bicycle riding safety helmets will be more expensive – increases costs for SSE – may need to raise prices – reduced sales
13. [Depreciation] Imported helmets will be more expensive in country Z so less competitive with SSE's products – increases sales of SSE's products in country Z
14. [Tariff] Tax placed on imported cricket helmets may raise the price of competitor's products – SSE products more competitive so demand increases – sales/revenue increases
15. [Tariff] Higher price of competitor's products may allow SSE to raise its prices – if demand remains the same – then sales/revenue will increase - profit increases
16. [Quotas] A limit is placed on the quantity of sport safety helmets that can be imported into export markets – limits the sales of SSE sports helmets so SSE has decided to set up its own factories in these markets
17. [Quotas] Prices of sports safety helmets may rise in export markets as limited supply – may keep revenue the same/increase revenue – depends on elasticity of demand - if price elastic demand, then revenue will fall as the price rises
18. [JUS] Depreciation of the currency will have the greatest effect on SSE's profit as the reduced price in foreign markets is likely to cause a large increase in demand leading to much higher sales of products such as the children's cricket safety helmets and hence revenue. The higher revenue will lead to an increase in profit as costs are unlikely to increase if raw materials can be sourced locally. A quota is unlikely to have much effect as long as the quantity is not too restricted, and a tariff is unlikely to have much effect on profit if there are few competitors from abroad in country Z.
19. [JUS] A tariff on products such as skateboarding safety helmets will have the greatest effect on SSE's profit as competitors may raise prices in response to the tariff and customers in country Z are more likely to now buy SSE's sports helmets. Demand for SSE's sports helmets will therefore increase leading to an increase in sales and revenue which will lead to much higher profit.
20. [JUS] A quota on products such as cricket safety helmets will have the greatest effect on SSE's profit as the number of exports of SSE's products will be restricted and so sales and hence revenue will fall leading to much lower profit.