Starter Activity

 Complete the worksheet provided by your teacher!

Topic 3.3: Break Even Charts
and Break Even Analysis
Unit 3: Building a Business
Learning Objectives
What are we learning today?
By the end of the lesson you
should be able...
 To understand the following key terms (AO1):
 Break Even Point
 Total Revenue
 Total Costs
 Fixed Costs
 Variable Costs
 To calculate the break even point. (AO2)
 To evaluate the financial performance in a break even chart.
(AO3)
 Break Even Point
 Break Even Point: The level of output where total
revenues are equal to total costs; this is where
neither a profit or loss is being made.
 Break Even Point
A credit stamp sells for £2

Fixed costs of production equipment are

£120,000

Variable costs are 50p per stamp

At what number of sales does

Total Revenues = Total costs ?
Break Even Chart
Unit Price £2 A 50p per unit B A-B
Total
Total Total Profit/
Unit Sales Variable Total Cost
Revenue Fixed Cost Loss
Cost
20,000 £40,000 £120,000 £10,000 £130,000
40,000 £80,000 £120,000 £20,000 £140,000
60,000 £120,000 £120,000 £30,000 £150,000
80,000 £160,000 £120,000 £40,000 £160,000
100,000 £200,000 £120,000 £50,000 £170,000
Break Even Chart
A B A-B
Total
Total Total Profit/
Unit Sales Variable Total Cost
Revenue Fixed Cost Loss
Cost
20,000 £40,000 £120,000 £10,000 £130,000 (£90,000)
40,000 £80,000 £120,000 £20,000 £140,000
60,000 £120,000 £120,000 £30,000 £150,000
80,000 £160,000 £120,000 £40,000 £160,000
100,000 £200,000 £120,000 £50,000 £170,000
Break Even Chart
A B A-B
Total
Total Total Profit/
Unit Sales Variable Total Cost
Revenue Fixed Cost Loss
Cost
20,000 £40,000 £120,000 £10,000 £130,000 (£90,000)
40,000 £80,000 £120,000 £20,000 £140,000 (£60,000)
60,000 £120,000 £120,000 £30,000 £150,000
80,000 £160,000 £120,000 £40,000 £160,000
100,000 £200,000 £120,000 £50,000 £170,000
Break Even Chart
A B A-B
Total
Total Total Profit/
Unit Sales Variable Total Cost
Revenue Fixed Cost Loss
Cost
20,000 £40,000 £120,000 £10,000 £130,000 (£90,000)
40,000 £80,000 £120,000 £20,000 £140,000 (£60,000)
60,000 £120,000 £120,000 £30,000 £150,000 (£30,000)
80,000 £160,000 £120,000 £40,000 £160,000
100,000 £200,000 £120,000 £50,000 £170,000
Break Even Chart
A B A-B
Total
Total Total Profit/
Unit Sales Variable Total Cost
Revenue Fixed Cost Loss
Cost
20,000 £40,000 £120,000 £10,000 £130,000 (£90,000)
40,000 £80,000 £120,000 £20,000 £140,000 (£60,000)
60,000 £120,000 £120,000 £30,000 £150,000 (£30,000)
80,000 £160,000 £120,000 £40,000 £160,000 0
100,000 £200,000 £120,000 £50,000 £170,000
The break even point is sales of 80,000 units where revenue of
£160,000 = total costs of £160,000
Break Even Chart
A B A-B
Total
Total Total Profit/
Unit Sales Variable Total Cost
Revenue Fixed Cost Loss
Cost
20,000 £40,000 £120,000 £10,000 £130,000 (£90,000)
40,000 £80,000 £120,000 £20,000 £140,000 (£60,000)
60,000 £120,000 £120,000 £30,000 £150,000 (£30,000)
80,000 £160,000 £120,000 £40,000 £160,000
100,000 £200,000 £120,000 £50,000 £170,000 £30,000
The break even point is sales of 80,000 units where revenue of
£160,000 = total costs of £160,000
 Drawing a break-even chart
• Draw a graph, label the x axis 0-120 (in multiples of 10) and draw
the y axis 0-200 (in multiples of 20)

• Draw a line in 1 colour for your fixed costs and label it on the side
• Draw a line in a different colour for your variable costs and label it
on the side (you wouldn’t normally include this on your graph)
• Draw a line in a third colour for your total costs and label it on the
side
• Draw a line in a fourth colour for your total revenue and label it on
the side
• Draw a dotted line across and down from your graph where total
costs = total revenue (where these lines meet, label it as your break
even point)
 Break Even point is when
Total Costs = Revenue
Revenue / Revenue
Costs £

B.E.P
Total Costs

Fixed Costs
Variable
Costs

Units in thousands
 Break Even point is when
Total Costs £160,000 = Revenue of £160,000

Revenue / Revenue
Costs £

200,000
B.E.P
Total Costs

Fixed Costs
100,000
Variable
Costs

20 40 60 80 100 Units in thousands

 Activity
 We are going to watch the following video.
 Activity
 Complete the worksheet provided by your teacher!
 Activity 2
Read pages 76 -77 and answer the following
questions in your book
1. What is the Margin of Safety?
2. What happens to the BEP when costs rise?
3. What happens to the BEP when costs fall?
4. What is Contribution analysis and how can
you calculate it?
5. Answer the TEST YOURSELF questions on p.78
= TOTAL FIXED COST
SELLING PRICE – VARIABLE COST
• A business selling T-shirts has a fixed cost of £100,000
and sells each T-shirt for £10.
• Its variable cost per T-shirt is £5.

• What is the Breakeven point?

• B.E.P = Fixed Costs

selling price – variable cost
= 100,000 100,000 = 20,000
£10 - £5 £5
= 20,000 t-shirts
Revise what we’ve learnt using BBC GCSE Bitesize