MHL manufactures tyres for large vehicles．It has factories in 6 countries．The business creates external costs when producing its products．Good communication with MHL＇s suppliers is important． The Managing Director knows globalisation provides many opportunities for MHL．She is reviewing data for one of MHL＇s factories as she wants to reduce the average cost of the tyres．An extract from this data is shown in Table 4．1．（a）Define＇average cost＇． .......................................................................................................................................

Business

IGCSE&ALevel

CAIE

Exam No：0450_s25_qp_12 Year：2025 Question No：4(a)

Answer:

Award 2 marks for a full definition. Award 1 mark for a partial definition.
- Total cost divided by (total) output [2]
- Total cost divided by the number of items produced/made [2]
- The cost of producing a single product/unit of output [2]

Partial definition e.g.
- Cost divided by output [1]
- Total cost divided by number of units [1]

Knowledge points:

4.2.1.1. Classifying costs using examples, e.g. fixed, variable, average, total

4.2.1.2. Use cost data to help make simple cost-based decisions, e.g. to stop production or continue

4.2.2.1. The concept of economies of scale with examples, e.g. purchasing, marketing, financial, managerial, technical

4.2.2.2. The concept of diseconomies of scale with examples, e.g. poor communication, lack of commitment from employees, weak coordination

4.2.3.1. The concept of break-even

4.2.3.2. Construct, complete or amend a simple break-even chart

4.2.3.3. Interpret a given chart and use it to analyse a situation

4.2.3.4. Calculate break-even output from given data

4.2.3.5. Define, calculate and interpret the margin of safety

4.2.3.6. Use break-even analysis to help make simple decisions, e.g. impact of higher price

Answer:

Knowledge points:

Solution:

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