The document describes how to create a break-even analysis graph showing fixed costs, variable costs, total costs and total revenue, and how to identify the break-even point where total revenue equals total costs. It also defines margin of safety as the difference between actual sales and break-even sales, representing the strength of the business in knowing profits or losses relative to the break-even point.

1. BREAK EVEN ANALYSIS GRAPH

2. Step 1
• Plot the quantity of shirts sold on the X axis.
• Plot the revenue and costs on the Y axis.
Step 2
• Draw the fixed cost line on the graph
Step 3
• Add the total cost line to the graph. Total costs are fixed costs plus variable
costs.
Step 4
• Add the total revenue curve to the graph
Step 5
• Identify the break-even point (BEP) on the graph. The BEP is the level of
output/sales when total revenue equals total cost.

3. MARGIN OF SAFETY
Margin of safety represents the strength of the business. It enables a
business to know what is the exact amount it has gained or lost and
whether they are over or below the break even point.
Margin of safety (in dollars) = Sales (Actual) – Sales (BE)

4. INTERPRETATION FROM GRAPH