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# Break Even Analysis Chart

As you might already know, break-even is a level of output at which revenues from sales equal total costs. It is the number of units a firm has to produce and sell to recover its total costs. To conduct the break-even analysis, we can either use a formula or a chart. Now, let's have a look at break-even analysis charts.

## What is a break-even chart?

The break-even chart is a method of carrying out a break-even analysis.

There are two methods to carry out the break-even analysis: calculation and break-even chart. To learn more about the numeric way of calculating break-even, take a look at our break-even analysis calculation explanation.

Break-even is the level of output at which revenues from sales equal total costs. It is the number of units a firm has to produce and sell to recover its total costs.

The break-even chart includes four variables: fixed costs, variable costs, total costs, and revenue. Each of them is represented as a line that indicates its value depending on the level of output.

 Term Definition Example Fixed costs costs that remain the same regardless of the number of units produced rent, rates Variable costs costs that rise and fall in direct proportion to the number of units produced raw materials used in production, direct labour Total costs fixed costs and variable costs added together rent and rates, raw materials used in production and direct labour added together Revenue money earned from sales cash from sales

Table 1 - Types of Costs Definitions and Examples

## How to draw a break-even analysis chart?

Drawing a break-even chart consists of six steps:

1. Draw axes.

2. Draw a line indicating fixed costs.

3. Draw a line indicating variable costs.

4. Draw a line indicating total costs.

5. Draw a line indicating revenue.

6. Mark the break-even point.

### Step 1: Draw axes

First, we need to draw two axes:

• Vertical axis - this one will display costs.

• Horizontal axis - this one will display quantity.

Fig. 1 - Break-Even Chart Step 1

Figure 1 illustrates the two axes in the break-even chart (cost and quantity).

### Step 2: Draw a line indicating fixed costs

Now we need to draw a line indicating fixed costs. Since fixed costs remain the same (in the short term), regardless of the number of units produced, this line will be horizontal and parallel to the axis that displays quantity.

Fig. 2 - Break-Even Chart Step 2

Figure 2 illustrates a horizontal line indicating fixed costs (FC) which are constant. Depending on its value, the line can be lower or higher on the chart.

### Step 3: Draw a line indicating variable costs

Now we need to draw a line indicating variable costs. Since variable costs rise and fall in direct proportion to the number of units, the line will start at the intersection point of the axes and gradually increase.

Fig. 3 - Break Even Chart Step 3

Figure 3 illustrates a line indicating variable costs (VC). Depending on its value, the line can have a more vertical or horizontal inclination.

### Step 4: Draw a line indicating total costs

Now we need to draw a line indicating total costs. Since total costs include both fixed and variable costs, the line will start at the intersection point of the cost axis and the line indicating fixed costs, and will gradually increase.

Fig. 4 - Break Even Analysis Chart Step 4

Figure 4 illustrates a line indicating total costs (TC). Depending on its value, the line can have a more vertical or horizontal inclination.

### Step 5: Draw a line indicating revenue

Now we need to draw a line indicating revenue. Since revenue is directly related to quantity, the line will start at the intersection point of the horizontal and vertical axes and increase gradually.

Fig. 5 - Break Even Chart Step 5

Figure 5 illustrates a line indicating revenue (R). Depending on its value, the line can have a more vertical or horizontal inclination.

### Step 6: Mark the break-even point

Now we need to mark the break-even point. The break-even point is the intersection point of the total costs and revenues lines.

Fig. 6 - Break Even Chart Step 6

Figure 6 illustrates the break-even point (🔴). The break-even point is the quantity (number of units) at a level where total costs and revenue intersect.

Company Z produces chairs. The rental cost of a factory is £12,000 a month and bills are £3,000 a month. The selling price per chair is £1,000. The cost of materials per chair is £500. How many chairs per month does the company have to produce and sell to reach the break-even level of output?

Fig. 7 - Break Even Chart Example

Figure 7 illustrates the break-even chart for the company X where:

R = revenue

TC = total costs

FC = fixed costs

VC = variable costs

🔴 = break-even point

These are the steps we followed drawing the break-even chart for the company X:

1. First, we drew two axes: a vertical one displaying costs and a horizontal one displaying quantity.
2. Then we drew a horizontal line indicating fixed costs (FC) that are £15,000. This is because the rental costs of the factory are £12,000 and bills are £3,000. So, £12,000 + £3,000 = £15,000.
3. Then we drew a line indicating that variable costs (VC) are £500 per unit. This is because the cost of materials per chair is £500. So, the variable cost of one chair is £500, the variable costs of two chairs are £1,000, etc.
4. Then we drew a line indicating total costs (TC). This line is parallel to the line indicating variable costs. However, it starts at the intersection point of the axis indicating costs and line indicating fixed costs.
5. Then we drew a line indicating revenue (R) which is £1,000 per unit. This is because the selling price per chair is £1,000.
6. Finally, we marked the break-even point (🔴) at the intersection point of lines indicating total costs (TC) and revenue (R).

This means that company Z has to produce 30 chairs a month to reach the break-even level.

Below you will find some advantages and disadvantages of using the break-even chart as a method to carry out the break-even analysis.

• It is relatively easy to draw.

• It not only shows the number of units a firm has to produce and sell to recover its total costs but also revenues and costs at different levels of production.

• It allows for businesses to see the interdependence between fixed, variable and total costs, revenue, and quantity of units.

• It can be more time-consuming to draw a chart than to simply calculate break-even levels of output.

• A poorly drawn chart can give inaccurate results.

As you can see, to conduct the break-even analysis, we do not necessarily have to calculate it. Instead, we can draw a break-even chart. This is an easy alternative that allows us to see revenues and costs at different levels of production and the interdependence between fixed, variable, and total costs, as well as revenue and quantity of units produced.

## Break-even analysis charts - Key takeaways

• A break-even chart is a method to carry out the break-even analysis.
• It includes four variables: fixed costs, variable costs, total costs, and revenue.
• To draw a break-even chart, we need to follow six steps: draw axes; draw a line indicating fixed costs; draw a line indicating variable costs; draw a line indicating total costs; draw a line indicating revenue; mark the break-even point.
• A break-even chart can be an easy but time-consuming method to carry out break-even analysis.
• It shows revenues and costs at different levels of production and allows us to see the interdependence between fixed, variable, and total costs, as well as revenue and quantity of units.
• A poorly drawn chart can give false results.

The break-even chart is a method of conducting the break-even analysis. The break-even analysis shows the level of output at which revenues equal total costs.

To draw a break-even chart, follow these six steps:

1. Draw axes
2. Daw a line indicating fixed costs
3. Draw a line indicating variable costs
4. Draw a line indicating total costs
5. Draw a line indicating revenue
6. Mark the break-even point.

The rental cost of a factory is £12,000 a month and the bills are £3,000 a month. The selling price per chair is £1,000. The cost of materials per chair is £500. After drawing the break-even chart, we can mark the point at which the revenue and total cost lines intersect, which is 30 chairs per month.

The break-even chart is easy to draw. It not only shows the amount of output by a company but also its costs and revenues at different output levels. Thus, by looking at the break-even chart, we can also find out about the business's fixed, variable, and total costs as well as sales, and quantity produced.

The break-even analysis chart can be time-consuming to draw and may give inaccurate results

There are six steps to follow to draw a break-even chart. They are as follows:

1. Draw axes
2. Daw a line indicating fixed costs
3. Draw a line indicating variable costs
4. Draw a line indicating total costs
5. Draw a line indicating revenue
6. Mark the break-even point.

## Final Break Even Analysis Chart Quiz

Question

What is a break-even chart?

Break-even chart is a method to carry out the break-even analysis.

Show question

Question

What is break-even?

Break-even is a level of output at which revenues from sales equal total costs. It is the number of units a firm has to produce and sell to recover its total costs.

Show question

Question

What are the four variables in a break-even chart?

fixed costs, variable costs, total costs and revenue

Show question

Question

What are the fixed costs?

costs that remain the same regardless of the number of units produced

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Question

Give an example of a fixed cost.

For example:

• rent
• rates

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Question

What are the variable costs?

costs that rise and fall in direct proportion to the number of units produced

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Question

Which of these is a variable cost?

raw materials used in production

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Question

What are the total costs?

fixed costs and variable costs added together

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Question

What is revenue?

money earned from sales

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Question

What are the six steps one should follow to draw a break-even chart?

• Draw axes
• Draw a line indicating fixed costs
• Draw a line indicating variable costs
• Draw a line indicating total costs
• Draw a line indicating revenue
• Mark the break-even point

Show question

Question

Where is the break-even point in a break-even chart?

The break-even point is the intersection point of lines indicating total costs and revenue.

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Question

A break-even chart consists of two axes. What do they display?

Costs and quantity

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Question

What are the advantages of a break-even chart?

• It is relatively easy to draw.
• It not only shows the number of units a firm has to produce and sell to recover its total costs but also revenues and costs at different levels of production.
• It allows to see the interdependence between fixed, variable and total costs, revenue and quantity of units.

Show question

Question

What are the disadvantages of a break-even chart?

It can be time consuming.

A poorly drawn chart can give false results.

Show question

Question

Besides a break-even chart, what is the other method to carry out the break-even analysis?

Calculation

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Question

Rent is an example of...

a fixed cost.

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Question

Direct labour is an example of...

a variable cost.

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Question

What does the vertical axis in a break-even analysis chart indicate?

Costs

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Question

What does the horizontal axis in a break-even analysis chart indicate?

Quantity

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Question

Break-even analysis chart allows for businesses to see the ___ between fixed, variable and total costs, revenue, and quantity of units.

interdependence

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Question

Break-even is the number of units a firm has to produce and sell to...

recover its total costs.

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Question

The break-even chart includes four variables: fixed costs, variable costs, total costs, and revenue. Each of them is represented as a line that indicates its value depending on...

the level of output.

Show question

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