1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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