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

Explain about office and administrative expenses, Explain about Office and ...

Explain about Office and administrative expenses These expenses are not related to factory but they pertain to the management and administration of the business. Such expenses

State material price variance, State Material price variance Difference...

State Material price variance Difference among standard price and the actual price of the material is the material price variance. This variance arises because of various facto

Advantages of abc analysis, ADVANTAGES OF "ABC ANALYSIS" The advantages...

ADVANTAGES OF "ABC ANALYSIS" The advantages derived from this analysis and its consequent follow up are summarized below: 1) Facilities selective control and thereby save va

Gardner manufacturing company produces, Gardner Manufacturing Company produ...

Gardner Manufacturing Company produces a product that sells for $120. A selling commission of 10% of the selling price is paid on each unit sold. Variable manufacturing costs are $

Explain kaizen and management, Kaizen and management Management has two...

Kaizen and management Management has two major components: 1) Maintenance 2) Improvement. The aim of  the maintenance function is to maintain current technological man

Transactions involves spot exchange, Identify whether each of the following...

Identify whether each of the following transactions involves spot exchange, contract, or vertical integration. For the last item if the contract length is optimal or suboptimal.

What is performance budgeting, What is performance budgeting The conce...

What is performance budgeting The concept of performance budgeting is used mainly in the government and public sector undertakings. It projects the government activities an

Management accountant vs financial accountant, Difference between manageria...

Difference between managerial accounting and financial accounting are mentioned below Audience – Internal Vs External Format of Reporting – Free format Vs prescribed

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