A scenario question keeps most of the base case and changes one figure. Recalculate contribution, then break-even units, and compare with the original answer.
This lesson follows calculating contribution and break-even point and is part of SPM Accounting cost and management accounting.
What is the base case?
The cake stall sells at RM25. Ingredients and a box use RM15 of each sale, and rent and salary total RM4 500 for the month. Contribution is RM10, and break-even is 450 cakes.
Worked example: three what-if scenarios
Each scenario changes one thing. The unchanged figures stay as they were.
| Scenario | Contribution (RM) | Fixed costs (RM) | Break-even units |
|---|---|---|---|
| Base case | 10 | 4 500 | 450 |
| A: selling at RM23 | 8 | 4 500 | 4 500 ÷ 8 = 562.5, round up to 563 |
| B: variable items fall to RM13 | 12 | 4 500 | 4 500 ÷ 12 = 375 |
| C: fixed items rise to RM5 400 | 10 | 5 400 | 5 400 ÷ 10 = 540 |
In scenario A, 562 cakes give a contribution of 562 × 8 = RM4 496, which is RM4 short. The 563rd cake covers it, so the answer is 563.
A price change or a variable cost change moves contribution. A fixed cost change moves the amount that contribution has to cover.
The mistake that rounds down
It is tempting to round 562.5 down to 562 because the number looks close. At 562 cakes the stall is still RM4 short of break-even.
Break-even means all costs are covered, and a lower whole number leaves a shortfall, so always round up.
Check yourself
Each unit sells for RM20 and uses RM12 of variable items, and the fixed items total RM3 200. Find the break-even units.
Then fixed costs rise by 10%. What is the new break-even? Also find the units needed for a profit of RM2 000 at the original fixed costs.
Answer
Contribution = 20 − 12 = RM8. Break-even = 3 200 ÷ 8 = 400 units.
Fixed costs rise to 3 200 × 1.10 = RM3 520. New break-even = 3 520 ÷ 8 = 440 units.
Target profit of RM2 000: (3 200 + 2 000) ÷ 8 = 5 200 ÷ 8 = 650 units.
What to study next
Practise these skills in the chapter practice set. To connect break-even to cash timing, read preparing a simple cash budget.
For a teacher to go through your scenario working, see online one-to-one Accounting tuition.