Break-even for GCSE Business

GCSE Business, Finance. Usually met in years 9 to 11.

Calculate contribution, the break-even point and the margin of safety, and see what happens when the price changes.

What you practise

Contribution per item
Break-even output and revenue
Margin of safety and price changes

Starts with contribution and builds to a new break-even after a price rise. Practice moves up a level when a round goes well and down when it does not.

Sample questions

Each sample comes with the method and the reason every wrong option is wrong. Real practice rounds are ten questions at your level.

Sample question, level 2 of 5

Fixed costs are £5,170. Each item sells for £20 and has a variable cost of £9. What is the break-even output?

470 items
56,870 items
574 items
178 items
259 items

Show the answer and method

Answer: A, 470 items

The method: Contribution = £20 − £9 = £11. Break-even = fixed costs ÷ contribution = £5,170 ÷ £11 = 470 items.

Why the other options are wrong:

B, 56,870 items: Divide the fixed costs by the contribution, not multiply.
C, 574 items: That divides by the variable cost. Divide by the contribution.
D, 178 items: Contribution is price minus variable cost.
E, 259 items: That divides by the price. Divide by the contribution (price − variable cost).

Sample question, level 4 of 5

Fixed costs are £2,560, the price is £16 and the variable cost is £8 per item. The business sells 530 items. What is its margin of safety?

850 items
1,680 items
530 items
210 items
320 items

Show the answer and method

Answer: D, 210 items

The method: Break-even = £2,560 ÷ £8 = 320 items. Margin of safety = 530 − 320 = 210 items.

Why the other options are wrong:

A, 850 items: Take the break-even output away from sales.
B, 1,680 items: That is the profit in pounds, not the margin in items.
C, 530 items: That is the actual sales.
E, 320 items: That is the break-even output. Margin of safety = actual sales − break-even output.

See where this fits: every GCSE option topic and Key Stage 3.