What is a Breakeven Chart?

A breakeven chart is a chart that shows the sales volume level at which total costs equal sales. Losses will be incurred below this point, and profits will be earned above this point. The chart plots revenue, fixed costs, and variable costs on the vertical axis, and volume on the horizontal axis. The chart is useful for portraying the ability of a business to earn a profit with its existing cost structure. The reader can see the unit volume sales level needed to achieve break even, and then needs to decide whether it is possible to reach this sales level. A sample of this chart appears in the following exhibit.

At a more sophisticated level, a breakeven chart can incorporate step costs, where additional costs are added when certain volume levels are reached. For example, adding a new shift may be required once unit volumes exceed 10,000 units. If these step costs are significant, it is possible that profits are maximized at the unit volume level just prior to where these additional costs are incurred.