What are the Lines on a Break-Even Diagram?

Struggling with Break-Even Diagrams? Let’s Make It Simple!

If you're revising for your Business exam and break-even diagrams still feel confusing, you're not alone! Many students lose easy marks just because they mix up the lines. The good news? Once you know what each line shows, break-even diagrams become one of the simplest ways to grab those extra marks. Let's break it down step-by-step, so you can walk into your exam feeling confident.

Watch the video for a 16 second overview and read the explanation below to get a grasp of the lines on a break-even diagram.

The Key Lines on a Break-Even Diagram

A break-even diagram is a visual way to show when a business will start making a profit, when its total revenue equals its total costs. On the diagram, you’ll usually see four main lines. Here's what each one represents:

1. Fixed Costs Line

• What it shows: The costs that stay the same, no matter how much you produce.

• Important to remember: Rent, business rates, and salaried staff are common examples.

• The fixed costs line is a straight horizontal line across the graph.

🔎 Tip: Fixed costs don't change with output, so the line is flat!

2. Variable Costs Line

• What it shows: The costs that increase with production, for example, raw materials.

• Important to remember: The more units you make, the higher your variable costs.

• The variable costs line starts from zero and slopes upwards.

🔎 Tip: No production = no variable costs! That’s why it starts at the origin (0,0).

3. Total Costs Line

• What it shows: The total cost of producing different levels of output.

• Important to remember: Total Costs = Fixed Costs + Variable Costs.

• The total costs line starts at the level of fixed costs on the y-axis and slopes upwards, reflecting both fixed and variable costs.

🔎 Tip: The total costs line is always starts at the begining of the fixed costs line.

4. Total Revenue Line

• What it shows: The money a business brings in from sales at different output levels.

• Important to remember: Total Revenue = Selling Price × Quantity Sold.

• The total revenue line starts at zero and slopes upwards. The more you sell, the more money you make!

🔎 Tip: If your total revenue is above your total costs, you're making a profit!

What About the Break-Even Point?

The break-even point is where the Total Revenue line and the Total Costs line cross. At this exact point:

• The business is not making a profit or a loss.

• Every sale beyond this point means the business starts making a profit.

You can find the break-even point in units (the number of units needed to break even) by reading across from the intersection down to the x-axis.

Conclusion: Master the Diagram, Secure the Marks!

Break-even diagrams are built around four simple lines: Fixed Costs, Variable Costs, Total Costs, and Total Revenue. If you can label them correctly and explain what happens at the break-even point, you’ll pick up valuable marks in your exam.

Top tip? Practise sketching quick versions from memory. Focus on understanding how the costs and revenue behave as output increases and soon it’ll become second nature! 💪