Break-Even Analysis & Break-Even Charts

Break-even analysis is one of the most important financial tools in GCSE Business Studies. It tells a business exactly how many units it needs to sell to cover all of its costs — the point at which it makes neither a profit nor a loss.

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What Is Break-Even?

The break-even point is the level of sales at which total revenue exactly equals total costs. At this point, the business makes zero profit and zero loss.

• If the business sells more than the break-even quantity, it makes a profit.
• If the business sells fewer than the break-even quantity, it makes a loss.

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The Break-Even Formula

Break-Even Point (units) = Fixed Costs ÷ (Selling Price per Unit − Variable Cost per Unit)

The term (Selling Price − Variable Cost per Unit) is called the contribution per unit — it is the amount each sale contributes towards paying fixed costs.

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Worked Example

A candle-making business has the following costs:

• Fixed costs: £6,000 per month
• Variable cost per candle: £2
• Selling price per candle: £8

Contribution per unit = £8 − £2 = £6