Cost, Revenue, Profit and Break-even
Fixed, variable and total cost, contribution, revenue, profit, break-even output, margin of safety and the assumptions behind cost-volume-profit analysis.
How to study A-level Business
Start with the objective and context, build a causal chain across functions, use the numerical and qualitative evidence, then reach a balanced, feasible judgement.
Core concepts
Concept 1
Costs must be classified for the decision and time horizon; fixed cost is not necessarily permanently unchanged.
Exam cue: Write the formula, substitute with units and interpret the result in context.
Concept 2
Contribution pays fixed cost and then contributes to profit, linking unit economics to break-even output.
Exam cue: Use contribution per unit before calculating break-even or target profit.
Concept 3
Break-even analysis clarifies volume risk but assumes stable price, unit variable cost, fixed cost and sales mix.
Exam cue: Test whether demand, capacity and assumptions make the calculated output feasible.
Risk pitfalls and guardrails
Confusing contribution with profit.
Guardrail: Do not give a generic advantage or recommendation without explaining why it matters for this organisation, stakeholder and time horizon.
Dividing fixed cost by selling price rather than contribution per unit.
Guardrail: Do not give a generic advantage or recommendation without explaining why it matters for this organisation, stakeholder and time horizon.
Reporting break-even output without rounding appropriately or judging capacity.
Guardrail: Do not give a generic advantage or recommendation without explaining why it matters for this organisation, stakeholder and time horizon.
Memory anchors
Total Revenue
Total revenue equals selling price multiplied by quantity sold.
Total Cost
Total cost equals total fixed cost plus total variable cost.
Profit
Profit equals total revenue minus total cost.
Contribution per Unit
Contribution per unit equals selling price minus variable cost per unit.
Break-even Output
Break-even output equals fixed cost divided by contribution per unit.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
Which cost stays unchanged in total within the relevant output range?
Output 8,000 units; variable cost £6 each. Total variable cost?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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