Thursday, February 18, 2010

Construction of a Breakeven Chart

The construction of a breakeven chart involves the drawing of fixed cost line, total cost line and sales line as follows:

1. Select a scale for production on horizontal axis and a scale for costs and sales on vertical axis.

2. Plot fixed cost on vertical axis and draw fixed cost line passing through this point parallel to horizontal axis.

3. Plot variable costs for some activity levels starting from the fixed cost line and join these points. This will give total cost line. Alternatively, obtain total cost at different levels, plot the points starting from horizontal axis and draw total cost line.

4. Plot the maximum or any other sales volume and draw sales line by joining zero and the point so obtained.

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