Pearson Edexcel · GCSE · Business
Course version: 1BS0 · Version from Sept 2017
Interpretation of break even diagrams: ● the impact of changes in revenue…
Full specification wording
Business revenues, costs and profits: Interpretation of break even diagrams: ● the impact of changes in revenue and costs ● break even level of output ● margin of safety ● profit and loss.
A break-even diagram visually represents a business's costs and revenues to identify the break-even level of output, where total revenue exactly equals total costs, resulting in neither profit nor…
Checked against the Pearson Edexcel 1BS0 specification (opens in a new tab) on .
- Point 2 of 2
- 4 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
A break-even diagram visually represents a business's costs and revenues to identify the break-even level of output, where total revenue exactly equals total costs, resulting in neither profit nor loss. Below this point, the business makes a loss; above it, a profit is generated. The margin of safety is the difference between the actual or expected output and the break-even output, showing how much sales can fall before a loss occurs. For example, if break-even is 500 units and current sales are 700 units, the margin of safety is 200 units. Interpreting these diagrams also involves analysing the impact of changes: an increase in variable costs steepens the total cost line, raising the break-even point, while a higher selling price steepens the revenue line, lowering the break-even point.
What earns the marks
- Identify the break-even level of output at the exact intersection of the total revenue and total cost lines.
- Calculate the margin of safety by subtracting the break-even output from the current or projected level of output.
- Determine profit or loss at a specific output level by measuring the vertical distance between the total revenue and total cost lines.
- Explain that an increase in fixed or variable costs shifts or steepens the total cost line, increasing the break-even point.
Common mistakes and how to put them right
Confusing the total cost line with the variable cost line.
Put it right: The total cost line starts at the fixed cost level on the y-axis, not at zero.
Calculating the margin of safety in currency instead of units.
Put it right: Express the margin of safety as a number of units of output.
Assuming an increase in selling price increases the break-even point.
Put it right: A higher selling price means fewer units need to be sold to cover costs, so the break-even point decreases.
Exam tips
- When asked to draw or amend a break-even chart, always use a ruler and clearly label the axes, total revenue, total costs, and fixed costs.
- To find the profit at a given output, draw a vertical line up from the x-axis to find the difference between total revenue and total costs.
- If a scenario mentions a change in costs or prices, explicitly state whether the new break-even point will be higher or lower than the original.
Try the lesson
The start of the Business revenues, costs and profits: Interpretation of break even diagrams: ● the impact of changes in revenue and costs ● break even level of output ● margin of safety ● profit and loss. lesson, made from checked teaching notes for this specification point.
Have a go first
On a break-even diagram, which of the following best describes the break-even level of output?
Listen
A break-even diagram visually represents a business's costs and revenues to identify the break-even level of output, where total revenue exactly equals total costs, resulting in neither profit nor loss. Below this point, the business makes a loss; above it, a profit is generated. The margin of safety is the difference between the actual or expected output and the break-even output, showing how much sales can fall before a loss occurs. For example, if break-even is 500 units and current sales are 700 units, the margin of safety is 200 units. Interpreting these diagrams also involves analysing the impact of changes: an increase in variable costs steepens the total cost line, raising the break-even point, while a higher selling price steepens the revenue line, lowering the break-even point. A strong answer earns marks for these points. Identify the break-even level of output at the exact intersection of the total revenue and total cost lines. Calculate the margin of safety by subtracting the break-even output from the current or projected level of output. Determine profit or loss at a specific output level by measuring the vertical distance between the total revenue and total cost lines. Explain that an increase in fixed or variable costs shifts or steepens the total cost line, increasing the break-even point. A common slip: Confusing the total cost line with the variable cost line. Instead, the total cost line starts at the fixed cost level on the y-axis, not at zero. Exam tip: When asked to draw or amend a break-even chart, always use a ruler and clearly label the axes, total revenue, total costs, and fixed costs.
See it
Key words
Say what each word means before you turn the card.
Break-even level of output
Try answering aloud or in your head before turning the card.
Margin of safety
Try answering aloud or in your head before turning the card.
Profit and loss
Try answering aloud or in your head before turning the card.
Impact of changes in revenue and costs
Try answering aloud or in your head before turning the card.
See every definition
- Break-even level of output
- The level of output where total revenue exactly equals total costs, resulting in neither profit nor loss.
- Margin of safety
- The difference between the actual or expected output and the break-even output, showing how much sales can fall before a loss occurs.
- Profit and loss
- Below the break-even point the business makes a loss; above it, a profit is generated.
- Impact of changes in revenue and costs
- An increase in variable costs steepens the total cost line, raising the break-even point, while a higher selling price steepens the revenue line, lowering the break-even point.
Label the diagram
Some boxes have lost their names. Pick the right name for each number.
1Box 1
2Box 2
3Box 3
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