Edexcel IGCSE Business: Costs and break-even analysis (4BS1) – Revision Notes

These notes condense section 3.3 Costs and break-even analysis of the Pearson Edexcel International GCSE in Business (4BS1) specification, Issue 2, February 2026. For full explanations and worked examples, read the study guide. When you are ready to test yourself, use the practice questions. Both Paper 1 (small businesses) and Paper 2 (large businesses) can draw on this topic. Course links: Edexcel IGCSE Business hub, the printable checklist and the free 10-minute diagnostics.

The three outcomes at a glance

Ref	Outcome	One-line summary
3.3.1	Concept and calculation of revenue, fixed and variable costs, total costs, profit and loss	Revenue − total costs = profit or loss
3.3.2	Concept of break-even and calculation of break-even level of output, from formula or diagram	Output where revenue = total costs
3.3.3	Interpret break-even charts: impact of changes in revenue and costs; limitations	Lines move, break-even moves; the model has weaknesses

Definitions

Term	Meaning
Revenue	Money received from sales: price per unit × quantity sold
Fixed costs	Costs that do not change with output in the short run (rent, insurance)
Variable costs	Costs that change in direct proportion to output (materials, packaging)
Total costs	Fixed costs + total variable costs
Profit	Revenue − total costs, when the answer is positive
Loss	Revenue − total costs, when the answer is negative
Break-even level of output	Output at which revenue equals total costs, so profit is zero
Contribution per unit	Selling price per unit − variable cost per unit (standard form; not given in the specification)

Formulas

What you want	Formula
Revenue	price × quantity
Total variable cost	variable cost per unit × quantity
Total costs	fixed costs + total variable costs
Profit or loss	revenue − total costs
Break-even output	fixed costs ÷ contribution per unit
Profit above break-even	(output − break-even output) × contribution per unit
Break-even revenue	break-even output × price

The specification does not give a break-even formula, so the standard form above is what you learn. Rounding break-even output up to a whole unit is the writer’s own advice, not specification text.

Method in steps: calculating break-even

1. Write down price per unit, variable cost per unit and fixed costs.
2. Contribution per unit = price − variable cost per unit.
3. Break-even output = fixed costs ÷ contribution per unit.
4. Round up to a whole unit if needed and state the unit (bars, cups, repairs).
5. If asked, find break-even revenue or profit at a given output.
6. Check: at that output, does revenue equal total costs?

Worked reminder

A workshop sells wooden stools at £30. Variable cost is £18 a stool. Fixed costs are £6,600 a month.

• Contribution = 30 − 18 = £12.
• Break-even = 6,600 ÷ 12 = 550 stools. Break-even revenue = 550 × 30 = £16,500.
• If variable cost rises to £20, contribution is £10 and break-even is 660.
• If fixed costs rise to £7,800, break-even is 7,800 ÷ 12 = 650.
• If price rises to £32, contribution is £14 and break-even is 6,600 ÷ 14 = 471.4, so 472 stools.

Method in steps: reading a break-even chart

1. Find the crossing of the revenue line and the total costs line.
2. Read down to the horizontal axis for break-even output.
3. Read across to the vertical axis for break-even revenue (equal to total costs there).
4. Read the fixed costs from where the total costs line meets the vertical axis.
5. At any output, profit or loss is the vertical gap between the revenue and total costs lines. Where the revenue line is below the total costs line the gap is a loss; where it is above, the gap is a profit.
6. Variable cost per unit is the rise in total costs per unit of output (divide the rise in total costs by the rise in output).

What each line looks like

Line	Where it starts	Slope
Fixed costs	At the fixed cost figure	Flat
Total costs	At the fixed cost figure	Rises by the variable cost per unit
Revenue	At zero	Rises by the price per unit

Impact of changes

Change	Line that moves	Break-even output
Price up	Revenue line steeper	Falls
Price down	Revenue line flatter	Rises
Variable cost per unit up	Total costs line steeper	Rises
Variable cost per unit down	Total costs line flatter	Falls
Fixed costs up	Total costs line starts higher	Rises
Fixed costs down	Total costs line starts lower	Falls

A change in sales volume does not move the lines. It moves the business along them, to a different profit or loss.

A lower break-even output is not automatically better. A price rise may lower break-even output but cut the number of customers.

Limitations of break-even charts

Limitation	Why it matters
Straight-line revenue	Discounts and special offers change the price per unit
Constant variable cost per unit	Bulk buying or overtime pay changes it
Fixed costs stay fixed	A bigger site or extra machine adds a step
All output is sold	Unsold stock is a cost, so profit is overstated
Based on forecasts	Costs and prices change
Does not show demand	A break-even figure says nothing about whether customers will buy it
One product	A business selling many products needs more assumptions

Command words to expect

Command word	What it asks for here
Define	The meaning of a term such as fixed costs or break-even
Calculate	Work with given data, with workings shown
Identify	Select a value from a chart or table, such as the break-even output
Complete the table	Fill in missing revenue, cost or profit values
Outline	Two linked points placed in the context given
Explain	A statement of fact with two expansion points
Analyse	An extended answer, placed in context
Justify	Recommend one of two options using the information given
Evaluate	A supported conclusion about the situation

Must-know distinctions

• Variable cost per unit versus total variable cost. The first stays constant; the second grows with output.
• Contribution versus profit. Contribution is per unit, before fixed costs. Profit is after all costs.
• Break-even output versus break-even revenue. One is units, the other is money.
• Moving along a line versus shifting a line. Sales volume moves you along; price and cost changes shift or tilt lines.
• Loss versus low profit. Below break-even is a loss. Above it, any gap is profit.

Quick self-test

1. Define revenue.
2. A business has revenue of £56,000 and total costs of £61,250. State its profit or loss.
3. A firm sells 250 units at £14.40. Calculate revenue.
4. Variable cost is £6.25 a unit. Calculate total variable cost for 250 units.
5. Fixed costs are £3,000 and total variable costs are £4,800. Calculate total costs.
6. Price £20, variable cost £8, fixed costs £15,000. Calculate break-even output.
7. Using the same figures, calculate profit when 1,500 units are sold.
8. Fixed costs rise to £18,000. Calculate the new break-even output.
9. Fixed costs are £2,800 and variable cost is £9 a unit. What price gives break-even at 400 units?
10. State where fixed costs can be read from on a break-even chart.
11. Outline one reason why a break-even chart may overstate profit.
12. Explain why a rise in variable cost per unit raises break-even output.

Answers

1. The money a business receives from selling its output (price × quantity sold).
2. 56,000 − 61,250 = a loss of £5,250.
3. 250 × 14.40 = £3,600.
4. 250 × 6.25 = £1,562.50.
5. 3,000 + 4,800 = £7,800.
6. Contribution = 12. 15,000 ÷ 12 = 1,250 units.
7. 250 units above break-even × £12 = £3,000. Check: revenue 30,000, total costs 15,000 + 12,000 = 27,000, profit 3,000.
8. 18,000 ÷ 12 = 1,500 units.
9. Fixed cost per unit at break-even = 2,800 ÷ 400 = 7. Contribution must be 7, so price = 9 + 7 = £16.
10. At the vertical axis: the total costs line starts at the fixed cost figure when output is zero (the flat fixed costs line is at the same height).
11. The chart assumes all output is sold. Unsold stock has still been paid for, so the profit shown is too high.
12. Each unit now leaves less contribution towards fixed costs, so more units must be sold to cover them. The total costs line is steeper, so it meets the revenue line later.

Where marks are usually lost

• Using the selling price instead of the contribution per unit as the divisor.
• Leaving the answer as 466.7 units rather than a whole unit.
• Mixing up variable cost per unit and total variable cost in a total costs sum.
• Starting the total costs line at zero on a plotted chart.
• Writing “profit” when the answer is negative: say loss.
• Missing units or the pound sign on an answer.
• Giving a limitation as a list word (“assumptions”) with no link to the business.
• Writing that a lower break-even always means more profit.
• Using two points in Explain answers: the command word asks for a statement and two expansion points.
• Skipping the workings, when the Calculate command word asks for them.

Frequently asked questions

What is the difference between fixed and variable costs? Fixed costs, such as rent and insurance, do not change when output changes in the short run. Variable costs, such as raw materials, change in direct proportion to output.

How do you calculate break-even output for Edexcel IGCSE Business? Divide fixed costs by the contribution per unit (selling price minus variable cost per unit). The 4BS1 formulae list does not include a break-even formula, so this is the standard form to learn.

How do you calculate profit at a given output using contribution? Multiply the contribution per unit by the number of units sold, then subtract fixed costs. A negative answer is a loss.

How does a price rise affect the break-even point? A price rise increases contribution per unit, so break-even output falls. It may also reduce the number of units customers buy, so profit does not always rise.

Official syllabus

Pearson Edexcel International GCSE in Business (4BS1), Specification, Issue 2, February 2026, published by Pearson Education Limited. Topic 3: Business finance, section 3.3 Costs and break-even analysis, points 3.3.1 to 3.3.3.