How can we draw a break even chart

Under this method the variable cost line is drawn first and then fixed cost line is drawn over and parallel to the variable cost line. The fixed cost line ,so drawn represents the total cost (variable + fixed) at various level of output because it is drawn above the variable cost line this method is useful to the management for decision making because it reveals additional information :

( there is graaf p no c-85)

a) The variable costs are shown directly for various levels of output/sales.

b) Marginal contribution at various levels of sales is indicated clearly by the difference between sales line and variable cost line.

c) It shows the recovery of fixed cost at various levels of production.

A small variation of this of this method is that of showing the various elements of fixed and variable factory overhead cost variable cost for example major cost elements such as direct material cost variable factory overhead cost variable selling overhead and costs.

(there is graaf p no c-86)

This is  a method form of a simple break even chart as shown in the first two methods above. Under this method total cost line is not drawn father another line called contribution line is drawn from the origin and this line goes up with the increase in the level of output. The fixed cost line is drawn parallel to the x- axis as in the first method. The sales line is also drawn as usual. in this method the question of intersection of sales line with the total cost line dose not arise because there is no cost line . the break even point is that point where the contribution line crosses the fixed cost line. at this  point total contribution is equal to the total fixed cost line dose not arise because there is no cost line. The break even point is that point where contribution line crosses the fixed cost line. The break even point is that point where the contribution arise crosses the fixed cost line. At the contribution is equal to the fixed and hence there is no profit or loss. As the point total contribution increases more than the fixed cost profit shall arise to the organization and as contribution break even chart shows clearly contribution at different levels of activity and indicates that all levels below the break even point are unable to cover the fixed costs.

 

Posted Date: 7/8/2013 5:45:17 AM | Location : United States

Ask an Expert

Related Discussions:- How can we draw a break even chart, Assignment Help, Ask Question on How can we draw a break even chart, Get Answer, Expert's Help, How can we draw a break even chart Discussions

Write discussion on How can we draw a break even chart
Your posts are moderated

Write your message here..

Related Questions

Incremental analysis, What nonfinancial factors should management consider ... What nonfinancial factors should management consider in making its decision on whether to accept or reject a special order?

Explain the terms - cost object and activities, Explain the terms - Cost ob... Explain the terms - Cost object and Activities Cost object : it is an item for which cost measurement is required for example a product or a customer. Activities: these c

Capital budgeting – planning investments, Project C would involve a current... Project C would involve a current outlay of $50,000 on equipment and $15,000 on working capital. The investment in working capital would be increased to $21,000 at the end of the f

Receivables management, In the earlier unit, we have studied how firms dete... In the earlier unit, we have studied how firms determine their requirements for current assets and manage their holdings in cash and marketable securities. Inside a classical manuf

What is competition oriented pricing policy, Competition oriented pricing p... Competition oriented pricing policy Most companies fix the price of their products after a careful consideration of the competitor's price structure. Deliberate policy may be f

Differentail cost analyais, Differnetial cost analysis uses Differnetial cost analysis uses

Irrelevant costs, Characteristics of irrelevant costs Characteristics of irrelevant costs

Orders per year , Lila Battle has determined that the annual demand for num... Lila Battle has determined that the annual demand for number 6 screws is 100,000 screws. Lila, who works in her brother's hardware shop, is in charge of purchasing. She estimates t

Which of the following costs is an example of a cost, Which of the followin... Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?

MOH Cost Help, During the year the company worked a total of 145,900 machin... During the year the company worked a total of 145,900 machine-hours on all jobs and incurred actual manufacturing overhead costs of $1,305,346. What is the amount of underapplied o