IGCSE Business: Break-Even Analysis – Formula, Graph and Exam Questions
IGCSE Business: break-even analysis is one of the most searched topics because it appears in almost every Business Studies paper. You need to calculate break-even (fixed costs ÷ contribution per unit), draw the break-even chart (fixed cost line, total cost line, revenue line; break-even where revenue = total cost), and interpret margin of safety and the effect of changes.
Break-Even Formula and Key Terms
- Break-even (units) = Fixed costs ÷ (Selling price per unit − Variable cost per unit). Denominator = contribution per unit.
- Break-even (revenue) = Break-even units × Selling price per unit.
- Margin of safety = Actual (or budgeted) output − Break-even output; or in revenue terms.
Drawing the Chart
- Axes: Output (units) on horizontal; Cost/Revenue (£ or $) on vertical.
- Fixed cost line: Horizontal (same at all output levels).
- Total cost line: Starts at fixed cost at zero output; slopes up (fixed + variable).
- Revenue line: Starts at origin; slopes up (price × quantity).
- Break-even point: Where revenue line crosses total cost line.
- Margin of safety: Distance from break-even output to actual output.
Tutopiya’s Business Studies tutors can help you master break-even calculations and chart drawing for full marks.
Worked Example and Common Mistakes
Example: Fixed costs = £2000, selling price = £10 per unit, variable cost = £6 per unit. Break-even = 2000 ÷ (10 − 6) = 500 units. Break-even revenue = 500 × 10 = £5000. Common mistakes: Wrong formula (e.g. dividing by selling price only); misreading fixed and variable costs; drawing the chart with wrong axes or slope; margin of safety shown incorrectly. Label the break-even point and margin of safety clearly on the chart.
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