Calculating Break-Even

Will it break even? 📊

Every new business wants to know: how many items must it sell before it stops making a **loss**? That point is called **break-even**. This module shows how to **calculate** the break-even level of output, work out the **margin of safety**, and read a **break-even diagram**.

The language of break-even 🔑

Four ideas run through this module:

The break-even formula 🧮

To find break-even, first work out the **contribution** per unit: contribution = selling price minus variable cost per unit. Then: break-even output = **fixed costs divided by the contribution per unit**. At break-even, total revenue equals total costs, so the business makes neither a **profit** nor a **loss**.

Work out the contribution ➖

An interactive activity.

Find the break-even output 🎯

An interactive activity.

Steps to break-even 🪜

An interactive activity.

Reading a break-even diagram ⚖️

On a break-even chart the total revenue line and the total cost line cross at the break-even point.

Plot the revenue line 📈

An interactive activity.

What is break-even? 🔎

What is true at the break-even level of output?

• Total revenue exactly equals total costs
• The business makes its biggest profit
• The business has no costs at all
• Sales have fallen to zero

Margin of safety 🛡️

An interactive activity.

Break-even in words 🧩

The contribution per unit is the selling price minus the _____ cost. The break-even output is the fixed costs _____ by the contribution. At break-even, total revenue equals total _____, so the business makes neither a profit nor a _____. Selling more than the break-even level gives a margin of _____.

Break-even facts ✅

Select the TWO statements that are TRUE about break-even.

• A higher contribution per unit lowers the break-even output
• The margin of safety shows how far sales can fall before a loss
• Higher fixed costs lower the break-even output
• Break-even output is fixed costs multiplied by contribution

Match each idea 🔗

Explain break-even ✍️

An interactive activity.