How can we draw a break even chart, Managerial Accounting

Assignment Help:

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.

 


Related Discussions:- How can we draw a break even chart

Types of factoring, Types of Factoring The factoring facilities can be ...

Types of Factoring The factoring facilities can be largely categorized in four groups that are as follows: 1)   Full service non-recourse (old line) 2)   Full service rec

Explain activity based costing versus traditional costing, Activity based c...

Activity based costing versus traditional costing Following are the main differences between activity based costing system and traditional costing system: Explain  1) Und

What is activity ratio, What is Activity ratio Funds are invested in se...

What is Activity ratio Funds are invested in several assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume

Factors influencing working capital requirements, The working capital needs...

The working capital needs of a firm are influenced by many factors. The important ones are as follows: Nature of business: The working capital necessity of a firm is closely l

Lease accounting, question:lease accounting implicit rate unknown,20%increm...

question:lease accounting implicit rate unknown,20%incremental rate leaseterm 4 years,find implicit rate using trial and error method.i know nothing about trial and error method in

Order acceptance or rejection, Excess machine hours 20,000. Received offers...

Excess machine hours 20,000. Received offers from two companies to buy 210,000 units of F at 0.60 and 300,000 units of D at 0.70. Estimated costs for the two products are;

Standard conventions in game theory, Standard conventions in Game Theory ...

Standard conventions in Game Theory Consider the following table as shown below: X plays row I, Y plays Column I, X wins 3 points X plays row I, Y plays Column II, X los

State the penetration pricing, State the Penetration pricing As opposed...

State the Penetration pricing As opposed to the skimming pricing the objective of penetration pricing is to gain a foothold in a highly competitive market. The objective of thi

Decision making environment-risk seeking-neutral-averse, Risk seeking:  ...

Risk seeking:  A risk seeker is a decision maker who is concerned in the best likely outcome no matter how small the chance that they might take place i.e. he takes high risks

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd