Break Even Diagrams Break Even point is when a firms total costs are the same as revenue At break even point the firm is making no profit, and is also making no loss. At output/sales levels less than break even point the firm is making a loss At output/sales levels higher than break even point the firm is making a profit

The Break Even Diagram Costs and Sales Revenue £s per month On a break even diagram the vertical (Y) axis shows costs and revenues £1000 £2000 £3000 The horizontal (X) axis shows output and sales Output and Sales - units 100 200 300 400 500

Fixed Costs Costs and Sales Revenue £s per month Fixed Costs do not change with output or sales. As output and sales increase, Fixed Costs remain the same. Examples of Fixed Costs include, rent, rates and loan repayments In this example Fixed Costs total £1200 per month. At output/sales nil Fixed Costs are £1200, at output/sales 100, 200, 300 etc. Fixed Costs are still £1200 – no change. £1000 £2000 £3000 F Fixed Costs Output and Sales - units 100 200 300 400 500

Variable Costs Costs and Sales Revenue £s Variable Costs change with output and sales. As output/sales increase, so do Variable Costs. At output nil, Variable Costs are nil. £1000 £2000 £3000 £4000 £5000 F Variable Costs In this example Variable Costs per unit are £10. So if we make and sell 1 unit Variable Costs are £10. If we make 100 VCs total £1000 And if we make 400 Variable Costs will be £4000 100 200 300 400 500 Output and Sales - units

Total Costs Costs and Sales Revenue £s Total Costs Total Costs are Fixed Costs plus Variable Costs At Output nil, we have no Variable Costs, just Fixed Costs. So Total Costs are £1200. £1000 £2000 £3000 £4000 £5000 Variable Costs But at higher levels of output/sales, we have Both Fixed and Variable costs. So at output 400, Total Costs = Fixed Costs £1200 plus Variable Costs £4000 (400 x £10) = £5200 Fixed Costs Output and Sales - units 100 200 300 400 500

Revenue Costs and Sales Revenue £s Revenue The Revenue line shows us different levels of revenue from different levels of sales. In this case we sell each unit for £15 At sales nil then revenue will be nil, but if we sell one then revenue will be £15, sell 100 £1500. £1000 £2000 £3000 £4000 £5000 And if we sell 300 revenue will be 300 x £15 = £4,500 Output and Sales - units 100 200 300 400 500

If we put the costs and revenue lines together we have the complete Sales Revenue £s If we put the costs and revenue lines together we have the complete Break Even diagram Total Costs Revenue £1000 £2000 £3000 £4000 £5000 Break Even Point Where Total Costs = Revenue Variable Costs Fixed Costs Break Even Output 240 units Output and Sales - units 100 200 300 400 500

Profit and Loss Costs and Sales Revenue £s Total Costs Area of profit £1000 £2000 £3000 £4000 £5000 Break Even Point Variable Costs Area of loss Fixed Costs Break Even Output Output and Sales - units 100 200 300 400 500