Construct a simple break-even chart
Plot fixed costs, total costs and sales revenue, then read the break-even point and margin of safety.
Exam scope and assessment notes
Cambridge IGCSE Business Studies 0450, 2026 syllabus, Version 2. Use the 2026 A*–G route; this qualification changes to 0264 for first assessment in 2027. Candidates are not assessed on constructing income statements or statements of financial position, nor on price-elasticity or exchange-rate calculations. Simple cash-flow forecast construction is assessed. Written practice is self-checked, not an official Cambridge grade; timed-paper evidence and human subject-teacher review remain outstanding.
Before you begin
- No previous business study is assumed. Identify the decision, the business context and the evidence that supports each claim.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which line begins at zero revenue when output is zero?
What you will learn
- Set up and label a break-even chart
- Plot the revenue and cost lines
- Interpret the break-even point
Set the axes and cost lines
Put output or sales volume on the horizontal axis and money on the vertical axis. Label both axes and use an even scale that covers the figures in the question.
Fixed costs form a horizontal line because they do not change with output in the simple model. Total costs begin at the fixed-cost level and rise with output as variable costs are added.
Add revenue and read the intersection
Sales revenue starts at zero when no units are sold and rises by the selling price per unit. The point where revenue and total costs meet is break-even: total revenue equals total cost.
Above the intersection revenue exceeds total cost and the model shows profit; below it total cost exceeds revenue and the model shows loss. Margin of safety is actual or planned sales minus break-even sales.
Pause and explain
What does the break-even intersection show?
Worked example
A product has fixed costs of $200, selling price $10 and variable cost $5 per unit. Describe the three lines and calculate where revenue and total costs meet.
Show the worked solution
- Fixed costs are a horizontal line at $200.
- Total cost starts at $200 and rises $5 per unit; revenue starts at zero and rises $10 per unit.
- Contribution is $5 per unit, so break-even output is 200 ÷ 5 = 40 units.
Answer The revenue and total-cost lines meet at 40 units and $400. At that output, revenue and total costs are both $400.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Fixed costs are $300, price is $15 and variable cost is $5 per unit. State the axes, line starting points and break-even output for a chart.
Give me a hint
Use contribution per unit and remember total cost starts above zero.
Compare my reasoning
- Label output on the horizontal axis and money on the vertical axis.
- Total costs start at $300; revenue starts at $0.
- Contribution is $10, so break-even output is 300 ÷ 10.
Use output on the horizontal axis and money on the vertical axis. Total costs start at $300 and revenue at $0. Contribution is $10 per unit, so the lines meet at 30 units and $450.
Look for these in your work
- Axes labelled
- Line starts correct
- Break-even calculated
At planned sales of 80 units, a chart shows break-even at 55 units. Calculate the margin of safety and explain it.
Give me a hint
Subtract break-even sales from planned sales.
Compare my reasoning
- Write 80 − 55.
- The margin is 25 units.
- This is the fall in sales the business could face before reaching break-even, under the model.
Margin of safety = 80 − 55 = 25 units. Planned sales could fall by 25 units before reaching break-even, if the chart assumptions hold.
Look for these in your work
- Subtraction correct
- Units stated
- Meaning explained
A manager shifts the total-cost line down to start at zero because output is zero at that point. Correct the chart and explain why.
Give me a hint
Fixed costs still exist even when no output is produced.
Compare my reasoning
- At zero output, variable costs may be zero.
- Fixed costs remain, so total costs equal fixed costs.
- Start the total-cost line at the fixed-cost intercept.
The total-cost line should begin at the fixed-cost amount, not zero. At zero output the business may have no variable cost, but rent or other fixed costs remain in the simple model.
Look for these in your work
- Fixed and variable costs distinguished
- Correct intercept stated
- Reason explained
Common mistakes
- Starting total costs at zero when fixed costs are positive
- Making revenue start above zero
- Reading break-even where revenue crosses fixed costs instead of total costs
What can you explain now?
Where does the total-cost line start on a simple break-even chart?
Compare with the explanation
At the fixed-cost amount
At zero output the business still incurs fixed costs.
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Make it stick
Which three lines are usually shown on a simple break-even chart, and where do they begin?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.