Break-even Analysis
Contribution, break-even output, margin of safety and the use and limitations of break-even information in decisions.
How to study for GCSE Business
Learn each concept as a cause-and-effect chain, practise calculations with units, apply evidence from the case and justify decisions against the business's objectives.
Core concepts
Concept 1
Contribution per unit equals selling price minus variable cost per unit and contributes first to fixed costs, then to profit.
Exam cue: Calculate contribution before break-even and retain units throughout.
Concept 2
Break-even output equals fixed costs divided by contribution per unit, subject to sensible rounding for whole units.
Exam cue: Explain how price, variable cost or fixed cost changes the break-even point.
Concept 3
Margin of safety compares actual or forecast sales with break-even output, while the model's usefulness depends on the accuracy and stability of its assumptions.
Exam cue: Use margin of safety as an indicator of exposure, then challenge assumptions such as constant price or full sales.
Risk pitfalls and guardrails
Dividing fixed costs by selling price rather than contribution.
Guardrail: Do not stop at a generic advantage or disadvantage: use the case, check the calculation and keep board-specific paper claims separate from the common core.
Confusing break-even revenue with break-even units.
Guardrail: Do not stop at a generic advantage or disadvantage: use the case, check the calculation and keep board-specific paper claims separate from the common core.
Treating a forecast break-even point as a guaranteed result.
Guardrail: Do not stop at a generic advantage or disadvantage: use the case, check the calculation and keep board-specific paper claims separate from the common core.
Memory anchors
Contribution per unit
Selling price per unit − variable cost per unit.
Break-even output
Fixed costs ÷ contribution per unit.
Margin of safety
Actual or forecast sales − break-even output.
At break-even
Total revenue equals total cost, so profit is zero.
Model limitation
Results depend on assumptions about price, cost, output and sales.
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
A product sells for £30 and has variable cost of £18 per unit. What is contribution per unit?
Fixed costs are £48,000, price is £40 and variable cost is £24 per unit. What is break-even output?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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