📊 What is a break-even chart?
Big Idea: A break-even chart is a graph that shows total costs and total revenue at different levels of output. The point where the two lines cross is the break-even point! 📈
Why draw a break-even chart?
- Visual way to see where the business starts making profit
- Shows the margin of safety clearly
- Helps businesses plan production levels
- Easy to see the impact of cost or price changes
✏️ How to draw a break-even chart — step by step
Follow these steps carefully for full marks in exams.
- Step 1: Draw and label the axes — x-axis = output (units), y-axis = costs/revenue ($)
- Step 2: Plot the fixed costs line — a horizontal line at the level of fixed costs
- Step 3: Plot the total costs (TC) line — starts at fixed costs, slopes upward (FC + VC)
- Step 4: Plot the total revenue (TR) line — starts at the origin (0,0), slopes upward
- Step 5: Mark the break-even point — where TC and TR cross
- Step 6: Label everything clearly — axes, lines, BEP, and units
Common mistakes: forgetting to label axes, not starting TC at fixed costs level, or not drawing to scale. These cost you marks!
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👀 Reading a break-even chart
Once the chart is drawn, you can read off important information.
- Break-even output — read down from the BEP to the x-axis
- Profit zone — the area where TR is ABOVE TC (to the right of BEP)
- Loss zone — the area where TC is ABOVE TR (to the left of BEP)
- Margin of safety — distance along x-axis between BEP and actual output
To calculate profit at any output level from the chart: read TR and TC at that point, then profit = TR − TC.
🏆 What examiners look for
Break-even chart questions are very common and typically worth 4 marks. Here's how to get full marks.
- [1 mark] Correctly labelled axes (output on x-axis, costs/revenue on y-axis)
- [1 mark] Correct total revenue (TR) line
- [1 mark] Correct total costs (TC) line
- [1 mark] Break-even point correctly identified
If the question says 'to scale' and your chart isn't drawn to scale, the maximum you can score is usually 2 out of 4.
Use a ruler! Neat, accurate lines make it much easier for the examiner to award marks.