Business Studies – 4.4.3 Break-even analysis | e-Consult

a) The break-even point is the level of sales (in units or revenue) at which total revenue equals total costs. At this point, the business is neither making a profit nor incurring a loss.

b)

• Fixed Costs: £10,000
• Variable Cost per Widget: £2
• Break-Even Point (in widgets): 2,500 widgets

This is determined by the point where the total revenue line intersects the total cost line on the chart. The horizontal axis represents the number of widgets sold, and the vertical axis represents costs and revenue in pounds (£).

c) The break-even point tells a business the minimum level of sales it needs to achieve to avoid making a loss. It's a crucial metric for business planning as it helps determine pricing strategies, production levels, and overall viability. If a business consistently sells below its break-even point, it will be incurring losses.