Break Even 1

Break even [28 marks]
1. [Maximum mark: 2] SPM.2.SL.TZ0.4

Waldo Manufacturing PLC (WM)
Waldo Manufacturing PLC (WM), a public limited company, manufactures premium

lighting fixtures for residences. In January 2020, the company increased its
number of shares from 1 million to 1.2 million by selling 200 000 shares at $50 per
share. WM also borrowed $20 million in the form of a bank loan.
The funds from both sources were used to shift from a mass production process
to a mass customization process. The change in how WM manufactured its
products also had a significant impact on its marketing strategy.
Employee reaction to the shift in processes was largely supportive, although

employees were also nervous about the impact the shift might have on the
profit-sharing bonuses at the end of the year.
The Chief Financial Officer (CFO) prepared forecasts for 2022, as shown in Table
5.
Table 5: Selected forecasted financial information for 2022
(a.i) Based on the data in Table 4 and Table 5, calculate the

forecasted sales revenue for 2022 (no working required). [1]
(a.ii) Based on the information in Table 5, calculate the forecasted

contribution per unit for 2022 (no working required). [1]
2. [Maximum mark: 6] SPM.2.HL.TZ0.2
Static Force (SF)
Static Force (SF ) produces disposable watches. It has a unique selling

point/proposition (USP) and strong brand awareness in the watch market for
offering very low prices. However, with online competition growing, SF is
experiencing falling sales. The Chief Executive Officer (CEO) of SF is considering
launching a new watch produced from recyclable materials and selling it at a
much higher price. The CEO is looking to set the price of this new watch at $160.
SF’s current watches are usually priced between $42 and $84.
Financial information on the new watch is shown in Table 2.
Table 2: Financial information on SF’s new watch
(a.i) Using information from Table 2, construct a fully labelled

break-even chart for SF, to scale, for the new watch
(show all your working).
[4]
(a.ii) Using information from Table 2, calculate the margin of safety

(show all your working).
[2]
3. [Maximum mark: 6] 23M.2.SL.TZ2.2
Alfombras Horizonte (AH)
Alfombras Horizonte (AH) produces natural henequen* rugs in Yucatán, Mexico, and
sells them online. AH rugs are very popular among young people because of their
eco-friendly materials and AH’s mission statement: “We are responsible with
Mother Earth for our environment and ourselves.”
In 2022, AH’s costs increased, but it kept prices unchanged. For 2023, AH decided to
change its pricing strategy and pass on all cost increases to customers.
Table 2: Selected financial information for AH for 2022 and forecasted

financial information for 2023
* henequen: a fibre plant from Mexico and Guatemala. Fabrics made from
henequen fibre are used to make a wide variety of products, including bags, rugs
and hammocks.
(a) Using relevant information from Table 2, calculate:
(a.i) the break-even quantity of rugs in 2022 (show all your working); [2]
(a.ii) the profit or loss for AH if 500 rugs were sold in 2022 (show all your [2]
working).
(a.iii) the margin of safety in 2023 if AH sells 750 rugs (show all your [2]
working).
4. [Maximum mark: 8] 22N.2.SL.TZ0.2
Florian Stones (FS)
Florian Stones (FS) sells handmade bracelets made from natural stones. FS enjoys
strong
brand awareness.
Table 2: Forecasted figures for FS for the year ending 31 December 2022
(a) Using Table 2, draw a fully labelled break-even chart, to scale,

for FS for 2022. [4]
(b) Using Table 2, calculate the profit or loss in 2022 for FS if

production and sales increase to 1200 bracelets
(show all your working). [2]
(c) Using Table 2, calculate the price FS would need to charge per
bracelet if it sells 800 bracelets and wants to make a profit of $10
000. Assume that the costs remain the same (show all your working). [2]
5. [Maximum mark: 6] 22M.2.SL.TZ0.1
AXL
AXL has two factories, in which it manufactures aluminium cans for the soft drinks
industry.
AXL has a maximum production capacity of 80 million cans per year.
Table 1: AXL’s forecasted sales revenue and costs for 2023
AXL plans to close its two factories and move production to a new, larger factory
to obtain economies of scale.
In the first six months of 2022, increased competition led to a fall in AXL’s sales. For
the final two months of 2022, AXL plans to increase the trade credit period it offers
to customers from 30 to 60 days.
(a.i) Using Table 1, calculate the contribution per unit (show all your
working). [2]
(a.ii) Using Table 1, calculate the break-even level of output (no

working required). [1]
(a.iii) If AXL produces 75 million cans in 2023, using Table 1,
calculate the margin of safety (no working required). [1]
(a.iiii) If AXL produces 75 million cans in 2023, using Table 1, calculate

the profit (show all your working). [2]
© International Baccalaureate Organization, 2023

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Break even [28 marks]

1. [Maximum mark: 2] SPM.2.SL.TZ0.4

Waldo Manufacturing PLC (WM), a public limited company, manufactures premium

Employee reaction to the shift in processes was largely supportive, although

Table 5: Selected forecasted financial information for 2022

(a.i) Based on the data in Table 4 and Table 5, calculate the

(a.ii) Based on the information in Table 5, calculate the forecasted

Static Force (SF ) produces disposable watches. It has a unique selling

Financial information on the new watch is shown in Table 2.

Table 2: Financial information on SF’s new watch

(a.i) Using information from Table 2, construct a fully labelled

(a.ii) Using information from Table 2, calculate the margin of safety

Table 2: Selected financial information for AH for 2022 and forecasted

(a) Using relevant information from Table 2, calculate:

(a) Using Table 2, draw a fully labelled break-even chart, to scale,

(b) Using Table 2, calculate the profit or loss in 2022 for FS if

Table 1: AXL’s forecasted sales revenue and costs for 2023

(a.ii) Using Table 1, calculate the break-even level of output (no

(a.iiii) If AXL produces 75 million cans in 2023, using Table 1, calculate

© International Baccalaureate Organization, 2023

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