This break-even analysis classroom activity gives introductory business students 45 minutes to calculate the sales needed to cover costs and decide whether a price cut makes sense. It runs on paper with a calculator. Students work in pairs, then defend their recommendation using the numbers.
Download the free student worksheet (PDF) and the separate instructor answer key (PDF). The example is fictional, uses US dollars, and needs no ClassTycoon account.
Spend the first five minutes establishing the question. A campus print business sells custom notebooks for $12 each. Monthly fixed costs are $1,200, and each notebook sold incurs $4 in variable costs. The business expects to sell 200 notebooks next month and can supply at most 300.
Fixed costs stay unchanged within that monthly capacity. Variable costs rise with each unit sold. Assume one product, no inventory changes, and no additional expenses. All figures cover the same month. Ask students how many notebooks the business must sell before it stops making an operating loss.
Use the next ten minutes for the calculation. Contribution per unit is the selling price minus variable cost per unit. Each notebook contributes $8 toward fixed costs. Dividing $1,200 by $8 gives a break-even point of 150 notebooks, or $1,800 in sales revenue.
At 150 sales, revenue equals total costs and operating profit is zero. At 200 sales, revenue is $2,400, variable costs are $800, and operating profit is $400 after fixed costs. Ask students to show both calculations so they can check their result.
Trace the two lines as sales rise. Revenue starts at zero, while total costs start at $1,200 because fixed costs are due even when no notebooks sell. The lines meet at 150 notebooks. Beyond that point, revenue exceeds total costs.
See the break-even graph
| Notebooks sold | Revenue | Total costs | Operating profit |
|---|---|---|---|
| 0 | $0 | $1,200 | -$1,200 |
| 100 | $1,200 | $1,600 | -$400 |
| 150 | $1,800 | $1,800 | $0 |
| 200 | $2,400 | $2,000 | $400 |
| 300 | $3,600 | $2,400 | $1,200 |
Give pairs ten minutes to evaluate a proposed discount. The owner wants to lower the price to $10 and predicts that sales will rise from 200 to 240 notebooks. Keep costs and capacity unchanged. Students must calculate the new break-even point and expected operating profit before recommending a price.
The lower price leaves $6 contribution per notebook. Break-even sales rise to 200 units. Selling 240 produces $2,400 in revenue and $240 in operating profit. Revenue is unchanged, but profit falls by $160 because the business incurs variable costs on 40 more notebooks.
Ask how many $10 notebooks would preserve the original $400 profit. The business needs $1,600 in total contribution, so it must sell 267 whole notebooks. Selling 266 leaves profit at $396; selling 267 produces $402. Round up when a calculated sales threshold falls between whole units.
Spend the next ten minutes challenging the recommendation. The forecast of 240 sales is below the 267 needed to preserve profit. Capacity allows 267 sales, but it does not establish that customers will buy them. Ask each pair what evidence would justify that higher forecast and what might happen if a rival also discounts.
Then change one assumption. A campus event raises monthly fixed costs to $1,500 without changing capacity. At $10 per notebook, break-even sales become 250. Selling 240 now produces a $60 loss. Students should revise their calculation when the cost commitment changes.
| Example | Price | Sales in units | Operating profit |
|---|---|---|---|
| Original forecast | $12 | 200 | $400 |
| Discount forecast | $10 | 240 | $240 |
| Discount preserves profit | $10 | 267 | $402 |
| Higher fixed costs of $1,500 | $10 | 240 | -$60 |
Fixed costs are $1,200 in the first three rows. Variable cost stays at $4 per notebook in every row. The 267-unit row is a required sales level, not a demand forecast.
Use the final ten minutes for a short written recommendation. Each pair should choose a price under the stated forecasts, show its profit calculation, and name evidence that could change its choice. Keeping $12 earns the higher forecast profit in the original case. Accept a different recommendation only when students state and support the changed assumptions.
Check whether students divide fixed costs by contribution rather than selling price, distinguish revenue from profit, and recalculate after a cost change. A correct formula with an unsupported sales forecast is an incomplete business recommendation.
The worksheet uses a simplified operating-profit model. It excludes tax and financing, and it does not measure cash available to pay bills. If contribution is zero or negative while fixed costs are positive, selling more cannot reach break-even under these assumptions. For the underlying method, see OpenStax’s explanation of break-even analysis.
Extend the discussion with the pricing strategy lesson or the price elasticity activity. Both help students question the demand forecast behind a pricing decision.
For a later class, choose a ClassTycoon simulation and ask each Team Company to compare its expected sales with the sales needed to cover the relevant scenario costs. Use that scenario’s actual cost definitions and account for inventory or other expenses before interpreting results. The paper exercise’s figures are teaching examples, not ClassTycoon settings.
Print one worksheet per pair and keep the answer key for the debrief. Ask students to write their price recommendation before revealing the worked answers.