Exam tip 1
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.
7115 · 4.2
Costs, scale of production and break-even analysis — common mistakes
Common exam mistakes on 7115 Costs, scale of production and break-even analysis. Learn what loses marks, then practise the topic with Examiner’s Ink.
Exam tip 2
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."
Why use contribution costing for break-even, not full costing?
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.
Can break-even be expressed in revenue (£) as well as units?
Yes. Break-even revenue = fixed costs ÷ contribution-to-sales ratio (contribution per unit ÷ selling price). Examiners often ask for units; know both forms.
What if contribution per unit is zero or negative?
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.