Describe the method of drawing a break even chart.
1) volume of production/output or sales is plotted on horizontal axis , i. e y - axis . the volume of sales or production may be expressed in terms of rupees, unites or as a percentage of capacity.
2) Costs and sales revenue are represented on vertical axis i. e y-axis.
3) Fixed cost line is drawn parallel to x-axis. The line shows that fixed expenses remain constant at all levels of activity.
4) The variable costs for different levels of activity. Are plotted over -the fixed cost line. The variable cost line. The variable cost line is joined to fixed cost line at zero level of activity. As the variable cost line is drawn above the fixed cost line, it represents the total cost at various levels of output/sales.
5) Sales values at various levels of output are plotted and a line is drawn joining these plotted points. This line is called the sales (revenue) line.
6) The point of intersection of total cost line and sales (revenue) line is called the break even point
7) The number of units to be produced at break even point can be determined by drawing a perpendicular to the x- axis from the point of intersection of cost and sales line. (there is graaf p no c- 85)
8) The sales revenue at break even point can be determined by drawing a perpendicular to the x-axis from the point of inter-section and sales line.
9) The area below the break even point represents the loss area sales and less than the total cost and the area above the break even point indicates the area of profit as the sales revenue exceed the total cost.