Break-even analysis — common mistakes

When drawing or interpreting a chart in an exam, label all three lines (FC, TC, TR), mark the break-even point, and shade or annotate the profit and loss regions. Examiners award marks for clear, correctly labelled diagrams.

In evaluate or discuss questions, do not only list limitations — link each to the business context in the case study. For example: "A single selling price is assumed, but the case mentions online discounts, so actual break-even may be higher than calculated."

Break-even is a short-run decision tool. Only variable costs change with output; fixed costs are covered by total contribution. Full (absorption) costing spreads overheads into unit cost and is not appropriate for break-even calculations.

Yes. Break-even revenue = fixed costs ÷ contribution-to-sales ratio (contribution per unit ÷ selling price). Examiners often ask for units; know both forms.

If SP ≤ VC, each unit sold loses money on variable costs alone — break-even is impossible at that price. The business must raise price or cut variable costs before break-even analysis is meaningful.