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

LOCKBOX SYSTEM, WHAT IS THE NPV OF ADOPTING THE LOCKBOX SYSTEM

WHAT IS THE NPV OF ADOPTING THE LOCKBOX SYSTEM

Explain budgetary control according to CIMA, Budgetary control Accordin...

Budgetary control According to CIMA the establishment of budgets relating the responsibilities of executive to the requirement of a policy and the continuous comparison of achi

Explain short term budgets, Explain Short term budgets Short term budge...

Explain Short term budgets Short term budgets: these budgets are generally for one or two years and are in the form of monetary terms. The consumer's good industries like su

Types of games, Types of games Four basic ways in which competitive sit...

Types of games Four basic ways in which competitive situations (or games) can be classified are: (a) Number of Competitors: In game theory a competitor is characteriz

Accounting profit, Accounting Profit is a company's sum total earnings, com...

Accounting Profit is a company's sum total earnings, computed according to Generally Accepted Accounting Principles (GAAP), and involves the explicit costs of operating business, l

Treasury risk management, A few of the main focus areas of treasury operati...

A few of the main focus areas of treasury operations are as follows: 1) Cash Flow-Receipts and Disbursements: Accelerating the collection of cash receipts and mobilization or

Line of credit, It is a commitment by a bank to lend a specific amount of f...

It is a commitment by a bank to lend a specific amount of funds on demand identifies the maximum amount of unsecured credit the bank will allow the customer to borrow at any time.

Trade credit, It is a spontaneous source of finance that is commonly extend...

It is a spontaneous source of finance that is commonly extended to business organization depending on the custom of the competition and trade prevailing within the organization and

Illustrate what the traffic can bear pricing, What the traffic can bear pri...

What the traffic can bear pricing Pricing based on what the traffic can bear is not a sophisticated method. It is used by retail traders as well as by some manufacturing firms.

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