Show the break-even charts, Cost Accounting

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Q. Show the Break-even charts?

Refers graphically profit and losses at different levels of sales volume achieved.

501_Show the Break-even charts.png

  • When sales revenue is greater than total cost it means that profits are being generated.
  • When sales revenue is less than total cost it means that losses are being incurred.
  • When sales revenue equals total costs (intersection of sales revenue lineand total costs line) it means that no loss or profit is occurring. This is break-even point.
  • Variable costs vary directly with output, as more output is produced then more variable costs are incurred.
  • Fixed costs don't vary with output and are constant for a range of output produced. They are incurred even when there is no output at the beginning of production. The reason behind this is they are costs which must be incurred to support manufacture like machinery or a warehouse.
  • Total costs line is a representation of combined variable and fixed costs. That is why at nil output it has a cost which signifies fixed costs, and then as output increases total cost line varies with it and in parallel with the variable cost line.
  • The margin of safety is extra amount of sales which is expected to be generated when budget or actual sales is compared to break-even level of sales.

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