Break-even charts

Drawing the chart

1. Horizontal axis: output (units sold). Vertical axis: costs and revenue (£).

2. Fixed cost line: horizontal at the level of fixed costs.

3. Total cost line: starts at the fixed cost on the vertical axis and rises by the variable cost per unit.

4. Sales revenue line: starts at the origin and rises by the selling price per unit.

5. Plot each line with two or three points (for example 0 units and maximum output).

6. Title, label axes and every line.

Reading the chart

• Break-even point: where the revenue line crosses the total cost line. Read down to the output axis (units) and across to the £ axis (revenue).
• Margin of safety: the horizontal distance between the break-even output and the planned output.
• Area of profit: between the revenue and total cost lines to the right of break-even; area of loss: to the left.
• Angle of incidence: the angle at which the revenue line cuts the total cost line. A large angle means profits grow quickly once break-even is passed (high contribution per unit); a narrow angle means profit builds slowly.

A contribution chart draws variable costs first and fixed costs on top, so contribution can be seen at every level.

Changes and limitations

• A higher selling price makes the revenue line steeper: break-even falls.
• Higher fixed costs move the total cost line up: break-even rises.
• Higher variable cost per unit makes the total cost line steeper: break-even rises.

Limitations: assumes straight lines (no bulk discounts or price cuts to sell more), all output is sold, costs can be split exactly into fixed and variable, a single product or a constant sales mix, and fixed costs stay fixed (stepped costs break this). ICT spreadsheets can redraw charts quickly for 'what if' changes.

Worked example

For a product with fixed costs £40,000, variable cost £15 and price £25 (maximum output 8,000), give the coordinates to plot each line.

1. Fixed cost: (0, 40,000) to (8,000, 40,000)
2. Total cost: (0, 40,000) to (8,000, 160,000)
3. Revenue: (0, 0) to (8,000, 200,000)
4. The lines cross at 4,000 units and £100,000

Answer: Break-even at 4,000 units, £100,000

Check yourself

1. Where does the total cost line start on a break-even chart?
   • At the origin
   • At the break-even point
   • At maximum output
   • At the level of fixed costs on the vertical axis
   Show answer

   At the level of fixed costs on the vertical axis. At zero output, total cost equals fixed cost.

2. What does the point where the revenue line crosses the total cost line show?
   • The margin of safety
   • The break-even point
   • Maximum profit
   • The angle of incidence only
   Show answer

   The break-even point. Revenue = total cost, so profit is zero.

3. What does a wide angle of incidence indicate?
   • Fixed costs are very high
   • The business is making a loss at all outputs
   • The margin of safety is zero
   • Profits increase rapidly once break-even is passed
   Show answer

   Profits increase rapidly once break-even is passed. A wide angle comes from a high contribution per unit.

4. The selling price rises while costs stay the same. What happens on the chart?
   • The revenue line becomes steeper and the break-even point falls
   • The total cost line moves up
   • The fixed cost line falls
   • The break-even point rises
   Show answer

   The revenue line becomes steeper and the break-even point falls. Each unit now contributes more.

5. Which is a limitation of break-even charts?
   • They cannot show fixed costs
   • They only work for service businesses
   • They assume all output produced is sold
   • They ignore selling price
   Show answer

   They assume all output produced is sold. Unsold inventory is ignored.

6. A chart shows fixed costs of £30,000; the total cost line reaches £90,000 at 5,000 units. What is the variable cost per unit?
   Show answer

   £12.00. (90,000 - 30,000) / 5,000 = £12.

7. The revenue line on a chart passes through £120,000 at 4,000 units. What is the selling price per unit?
   Show answer

   £30.00. 120,000 / 4,000 = £30.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (XAC11/YAC11), Issue 2

Last updated 8 November 2026. Spotted a mistake? Tell us.