A Level Business: Costs and Budgets (Cambridge 9609) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 5.4 Costs and 5.5 Budgets of the Cambridge International AS & A Level Business 9609 syllabus for examination in 2026, 2027 and 2028, AS Level content that A Level candidates also study. All businesses and people are invented. Revise first with the study guide and the revision notes. Course links: the Cambridge A Level Business hub, the checklist and the free diagnostics.

Questions

1. Define the term indirect cost. [2]

2. Norvik Coaches hires out coaches. For each cost, state whether it is fixed or variable and whether it is direct or indirect for a single hire: (a) fuel used on the trip; (b) annual vehicle insurance; (c) the office manager’s salary. [3]

3. Quillgate Bakery bakes 5,000 loaves a month. Fixed costs are £3,000 a month and variable costs are £0.90 a loaf. Loaves sell for £2.10.

(a) Calculate total cost. [1] (b) Calculate average cost per loaf. [1] (c) State the marginal cost of one extra loaf, assuming fixed costs do not change. [1] (d) Calculate monthly profit. [1]

4. Explain one difference between full costing and contribution costing, and explain why contribution is not the same as profit. [4]

5. Norvik Coaches runs a day tour. The price is £28 a passenger and the variable cost is £11 a passenger. Fixed costs are £5,100 a week.

(a) Calculate the contribution per passenger. [1] (b) Calculate the break-even number of passengers a week. [2] (c) Weekly demand is 380 passengers. Calculate the margin of safety and the weekly profit. [3] (d) Weekly fixed costs rise by £850. Calculate the new break-even number of passengers. [2]

6. Brimstone Barbecues makes steel grills. Variable cost is £150 a grill and full cost is £205. Grills sell for £240. A garden retailer offers £170 each for a one-off order of 80 grills. The workshop has spare capacity and fixed costs would not change.

(a) Calculate the extra profit from accepting the order. [2] (b) Explain why the order could be accepted although £170 is below full cost. [2] (c) Recommend whether Brimstone should accept the order. [4]

7. Quillgate Bakery’s full cost for a celebration cake is £18.40. The owner uses cost-plus pricing with a mark-up of 35%.

(a) Calculate the selling price. [2] (b) Analyse one limitation of cost-plus pricing. [3]

8. Explain the difference between incremental budgeting and zero budgeting. [4]

9. Norvik Coaches’ monthly budget and actual results are below.

Item	Budget	Actual
Sales revenue	£62,000	£58,400
Fuel	£14,500	£15,900
Wages	£21,000	£20,200
Other costs	£9,000	£9,000

(a) Calculate the variance for sales revenue, fuel, wages and profit, stating whether each is adverse or favourable. [4] (b) Analyse two possible reasons for the fuel variance and suggest one action for management. [4]

10. Quillgate Bakery budgeted to make 10,000 pies. The ingredients budget was £6,000 (£0.60 a pie) and rent was £2,500. The bakery actually made 12,000 pies. Ingredients cost £7,500 and rent was £2,500.

(a) Calculate the flexed ingredients budget. [2] (b) Calculate the ingredients variance against the flexed budget and state whether it is adverse or favourable. [2] (c) Explain why the flexed comparison is more useful than comparing with the original budget. [2]

11. Wyckham Hampers plans a second unit. Fixed costs would be £9,600 a month. Each hamper sells for £40 and has a variable cost of £24. Market research suggests sales of 700 a month, but a rival opening nearby could cut that to 500.

(a) Calculate the break-even output, the margin of safety and the monthly profit at 700 hampers. [4] (b) Evaluate how useful break-even analysis is in deciding whether to open the second unit. [6]

Answers

1. A cost that cannot be traced to one particular product or cost centre [1]; it is shared across the business, for example factory rent [1]. [2] Examiner insight: a definition gains more credit when it says what makes the cost indirect (not traceable), with an example as support rather than the whole answer.

2. (a) Fuel is variable and direct, because it changes with the trip and is traceable to it [1]. (b) Insurance is fixed and indirect [1]. (c) The office manager’s salary is fixed and indirect [1]. [3] Examiner insight: both labels are needed for each item. Fixed or variable is about behaviour with output; direct or indirect is about traceability, so mixing the two up loses credit.

3. (a) Total cost = £3,000 + 5,000 × £0.90 = £7,500 [1]. (b) £7,500 ÷ 5,000 = £1.50 [1]. (c) £0.90 [1]. (d) Revenue = 5,000 × £2.10 = £10,500, so profit = £10,500 − £7,500 = £3,000 [1]. [4] Examiner insight: show the working line, not only the answer, so that the method is visible and each later part can build on a clearly stated figure.

4. Full costing shares fixed (indirect) costs between products, whereas contribution costing looks only at price minus variable cost and does not share fixed costs out [2]. Contribution is what is left to pay towards fixed costs [1]; profit is what remains after fixed costs have also been deducted [1]. [4] Examiner insight: “explain” asks for the reason as well as the statement. A difference only gains full credit if both methods are described, not just one.

5. (a) £28 − £11 = £17 [1]. (b) £5,100 ÷ £17 [1] = 300 passengers [1]. (c) Margin of safety = 380 − 300 = 80 passengers [1]. Profit = 380 × £17 − £5,100 [1] = £6,460 − £5,100 = £1,360 [1]. (d) New fixed costs = £5,950, so £5,950 ÷ £17 [1] = 350 passengers [1]. [8] Examiner insight: divide by contribution per unit, not price. State the unit (passengers) with the answer, and say whether the margin of safety is in units or a percentage.

6. (a) Contribution = £170 − £150 = £20 a grill [1]; 80 × £20 = £1,600 extra profit [1]. (b) Fixed costs are already covered and would not change, so full cost overstates the extra cost of the order [1]; every grill sold above £150 adds to profit [1]. (c) Recommend accepting, because it adds £1,600 and uses spare capacity [1]. But regular customers paying £240 may learn of the discount and ask for it, which could reduce future profit [1]; the order must not displace full-price sales [1]. Overall, accept if the order is kept separate from regular customers and capacity is truly spare, because the gain is certain and the risks can be managed [1]. [8] Examiner insight: a recommendation earns credit when it is backed with both the numbers and the non-financial factors, and reaches a clear decision rather than listing points.

7. (a) £18.40 × 1.35 [1] = £24.84 [1]. (b) Cost-plus ignores what customers will pay [1]; if rivals sell similar cakes for less, £24.84 may reduce sales [1], so revenue and profit could fall even though each cake has a margin [1]. [5] Examiner insight: “analyse” needs a chain: the limitation, why it matters, and the effect on the business. A one-line statement gets limited credit.

8. Incremental budgeting starts from last period’s budget [1] and adds or subtracts a percentage [1]. Zero budgeting starts from nothing each period [1] and every item must be justified before it gets funds [1]. [4] Examiner insight: give both halves of the contrast. Answers that describe only one type can only earn credit for that type.

9. (a) Revenue: £62,000 − £58,400 = £3,600 adverse [1]. Fuel: £15,900 − £14,500 = £1,400 adverse [1]. Wages: £21,000 − £20,200 = £800 favourable [1]. Profit: budget £17,500, actual £13,300, so £4,200 adverse [1]. (b) Reason 1: fuel prices rose above the budgeted price [1]. Reason 2: more miles were driven, or drivers used longer routes [1]. Action: renegotiate fuel contracts or plan routes more efficiently [1]. The fuel variance should be compared with the number of trips run, since revenue was also down, so cost per trip rose [1]. [8] Examiner insight: always label a variance adverse or favourable. In “analyse”, reasons are more convincing when tied to the data given.

10. (a) The cost is £0.60 a pie, so the flexed budget scales with output [1]: £0.60 × 12,000 = £7,200 [1]. (b) £7,500 − £7,200 = £300 adverse [1]; actual cost is above the flexed budget [1]. (c) Output was 2,000 pies higher, so the original budget is for a different level of activity [1]; flexing shows whether cost control was good for the output made, so £1,200 of the £1,500 gap against the original budget is just extra volume [1]. [6] Examiner insight: variable costs should be flexed and fixed costs left alone. Explaining that volume changed gains more credit than saying only that flexing is “fairer”.

11. (a) Contribution = £40 − £24 = £16 [1]; break-even = £9,600 ÷ £16 = 600 hampers [1]; margin of safety = 700 − 600 = 100 hampers [1]; profit = 700 × £16 − £9,600 = £1,600 [1]. (b) For: break-even is 600, and expected sales of 700 give a profit of £1,600 [1]. It gives the minimum target, easy to explain to a bank [1]. Against: the margin of safety is only 100 hampers (14.3% of expected sales) [1]; if sales fall to 500, the unit makes a loss of £1,600 a month [1]. It assumes a constant price and variable cost and that every hamper is sold, which a nearby rival makes doubtful [1]. Judgement: break-even is useful as a risk check but should not decide alone; the owner should test the demand forecast and a lower-fixed-cost option before opening, since the profit is small and the downside is the same size [1]. [10] Examiner insight: in “evaluate”, calculations support the argument but do not replace it. Credit is usually gained for a reasoned judgement that refers to the case figures.

Where marks are usually lost

• Dividing the fixed costs by price when contribution per unit is needed.
• Calling contribution “profit”.
• Leaving out units, or mixing units and percentages for margin of safety.
• Giving a variance without “adverse” or “favourable”.
• Not flexing variable costs when output has changed.
• Listing non-financial factors in a special order question without reaching a decision.
• Describing a limitation of break-even without applying it to the business.
• Using an “explain” command word to write a definition only.

Next steps

• Re-read the revision notes for the formulas.
• Review the study guide for any weak area.
• Course links: the Cambridge A Level Business hub and the checklist.
• Try the free diagnostics.
• Book a free trial class on the trial page.

Frequently asked questions

Which sections of Cambridge AS and A Level Business 9609 do these questions cover? Section 5.4 Costs and section 5.5 Budgets, including cost classifications, costing methods, break-even and variance analysis.

What is the most common mistake in break-even calculations? Dividing fixed costs by the price instead of by the contribution per unit. Also state the unit, such as passengers or products, in the answer.

How do you label a budget variance? Always say whether it is adverse or favourable, judged by its effect on profit rather than by its sign. A variance figure with no label loses marks.

What is a flexed budget? A flexed budget adjusts the original budget to the actual level of output, so variable costs are scaled to output while fixed costs are left alone. This makes the comparison with actual results fairer.

Official syllabus

Cambridge International AS & A Level Business 9609 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge International), sections 5.4 and 5.5.