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GCSE Business · key term
Using costs and revenue at different output levels to identify break-even and help assess business decisions.
Used by AQA and OCR
Paper 2
Revise: Financial Terms and Break-even AnalysisBreak-even analysis gives a business a clear sales target for covering its costs. The bakery owner can compare the target of 50 cakes with expected customer demand and use it to plan production. Marketing decisions affect whether enough customers buy, while production decisions affect whether the bakery can supply that quantity.
Paper 2
A planning tool that uses costs and revenue to identify the sales quantity at which total revenue equals total costs, and to explore the effects of possible changes.
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Break-even analysis helps a business judge how many units it must sell to cover its costs. At break-even, total revenue equals total costs: there is neither a profit nor a loss. Revenue is the income from sales, whereas profit is what remains after total costs have been deducted.