About Finance and break-even in O Level Business Studies
Finance and break-even is one of the 3 main topics in our O Level Business Studies (Cambridge (CAIE) 7115) question bank, and about 19% of its real questions come from it. Tayyari Karo has 17 real questions on this topic from 2021 to 2025, from Paper 1, Paper 2. By difficulty: 12 hard, 5 medium.
Work through the questions below, then open the explanation for each one. Redo the ones you missed a few days later.
Try 5 real questions
These are real past-paper questions. Think of your answer first, then open the explanation.
Oct/Nov 2025 · Paper 2 · Finance and break-even
LB needs to manage its finances and plan growth. (a) Explain two reasons why working capital is important to LB. (b) Using Appendix 2 and other information, consider the three options for the future growth of LB. Which option should LB choose? Justify your answer using appropriate calculations.
Show model answer
(a) [8, 4 each] Any two from: pays day-to-day expenses; avoids insolvency; allows purchase of stock; covers wages before revenue is received; supports smooth operations. (b) [12] Award for using Appendix 2 data to compare the three growth options (e.g. cost, return, risk) and selecting one with clear, calculated justification.
May/June 2024 · Paper 2 · Finance and break-even
EP.
(a) Explain two factors EP should consider when choosing a source of finance. [8]
(b) Using Appendix 3 and other information, consider the following two products EP makes. Which product should EP stop making? Justify your answer: Product A; Product B. [12]
Show model answer
(a) Any two of: the cost / interest rate; the risk involved; the amount needed; the time period required; effect on ownership / control; impact on cash flow.
(b) Requires Appendix 3 data (e.g. profit, demand, cost of each product). Candidate must compare Product A and Product B and recommend which to stop making, justified by the figures.
Appendix 3 data from the case-study insert not provided; (b) calculation requires those figures.
Oct/Nov 2024 · Paper 2 · Finance and break-even
CC needs finance and must set prices. (a) Explain two reasons why CC might need finance. (b) Consider the following three pricing methods CC could use for its existing products. Which pricing method should CC use? Justify your answer. Cost-plus; Promotional; Competitive.
Show model answer
(a) [8, 4 each] Any two from: buy new equipment/ machinery; fund expansion/ new premises; cover working capital; launch new products; cope with seasonal demand. (b) [12] Cost-plus: ensures a profit margin but may be uncompetitive. Promotional: attracts customers but lowers short-term profit. Competitive: matches market but may start a price war. Award up to 12 for a justified choice comparing all three.
May/June 2021 · Paper 2 · Finance and break-even
FO is expanding.
(a) Explain how one internal source and one external source of finance could be used by FO as it expands. [8]
(b) Consider the advantages and disadvantages to FO of using a wholesaler, retailer or selling direct to the customer when distributing its products. Which channel of distribution should FO use? Justify your answer. [12]
Show model answer
(a) Internal: retained profit (using earnings kept in the business; no interest and no loss of control). External: bank loan / overdraft / share issue / trade credit (provides larger sums but may involve interest, repayment or loss of some control). Candidate must explain one of each.
(b) Accept any choice justified. Wholesaler: sells in bulk, less control over final customer. Retailer: wider reach but retailer takes margin. Selling direct: full control and customer contact but requires own distribution. Choice depends on FO's resources and strategy; candidate must justify.
Case-study (FO) insert not provided; answers based on syllabus knowledge.
Oct/Nov 2021 · Paper 2 · Finance and break-even
SSM has cash-flow problems. (a) Explain two ways SSM's cash-flow problems could be overcome. (b) Consider the effects on SSM of the following changes in country Y. Which effect is likely to have the greatest impact on SSM's profit? Justify your answer. Increase in employment; Increase in inflation.
Show model answer
(a) [8, 4 each] Any two from: negotiate longer credit from suppliers; offer less credit to customers/ chase debts; arrange an overdraft/ short-term loan; reduce costs/ delay payments; sell surplus assets; improve stock control. (b) [12] Increase in employment: more people in work raises demand for SSM's products, raising revenue/profit. Increase in inflation: raises SSM's costs (wages, materials) and may reduce demand if prices rise. Award up to 12 for a justified choice with comparison; either may be selected if well argued.
