The profit or loss at any sales level can be determined by the vertical distance between the two lines at that level in Exhibit 3-2. For quantities fewer than 25 units sold, total costs exceed total revenues, and the purple area indicates operating losses. For quantities greater than 25 units sold, total revenues exceed total costs, and the blue-green area indicates operating income. At 25 units sold, total revenues equal total costs. Emma will break even by selling 25 packages.
Like Emma, many companies, particularly small-and medium-sized companies, use the graph method to see how their revenues and costs will change as the quantity of units sold changes. The graph helps them understand their regions of profitability and unprofitability.