Changes in revenue and costs on break-even diagrams

On a break-even diagram, changing the selling price, variable cost per unit or fixed costs moves a line. Changing how many units you sell moves your actual sales along the horizontal axis. Both change the break-even point, the profit or loss at a given output and the margin of safety.

Selling price and quantity sold

If the selling price rises with costs unchanged, each sale brings in more money, so the revenue line becomes steeper and crosses the total cost line at a lower output. The break-even point falls and profit at a given output is higher. A lower selling price makes the revenue line less steep, raises the break-even point and reduces profit or increases loss.

Selling more units at the same price does not move the revenue line; it moves actual sales right. Revenue at that output is higher, so profit and the margin of safety can increase. Selling fewer units moves actual sales left, which can turn a profit into a loss and shrinks the margin of safety.

Fixed and variable costs

A higher variable cost per unit makes the total cost line steeper because costs rise faster with each unit made, so break-even rises and profit falls. A lower variable cost per unit flattens the line, lowering break-even and raising profit. Higher fixed costs shift the whole total cost line upward, so break-even is higher and profit lower; lower fixed costs shift it down and lower break-even.

Worked example

Poppy sells plant pots for £12 each. Fixed costs are £400 a month and variable cost is £4 a pot, so break-even is £400 ÷ (£12 − £4) = 50 pots. At 70 pots, revenue is £840 (70 × £12) and total costs are £680 (£400 + 70 × £4), so profit is £160 and the margin of safety is 20 pots. If the price rises to £14, break-even falls to 40 pots and profit at 70 pots rises to £300. If variable cost rises to £6, break-even rises to 67 pots and profit at 70 pots falls to £20. If fixed costs rise to £480, break-even becomes 60 pots and profit falls to £80.