Graphical Approach For Cvp Analysis (Break-Even Chart) Worksheet

Graphical Approach For Cvp Analysis (Break-Even Chart) Worksheet - Chapter 3 Page 3

Chapter 3

| Break-Even and Cost-Volume-Profit Analysis

Solution

Graph the following linear functions:

continued

■

Total Revenue function, TR = P × Q = 70.00 × Q

■

Total Costs function, TC = (VC × Q) + FC = (30.00 × Q) + 5000.00

Create a table of values when Q = 0 and 300 (maximum quantity) and choose Q = 100 (any

value in between) as the third point.

100

300

7000

21,000

5000

8000

14,000

Using these coordinates, construct OC to represent the Total Revenue line and AD to

represent the Total Costs line.

(ii) Determining the break-even volume

The x-coordinate of the break-even point (E) is 125.

Therefore, the break-even volume is 125 chairs.

Determining the break-even revenue

The y-coordinate of the break-even point (E) is $8750.00.

Therefore, the break-even revenue is $8750.00.

Computing the break-even as a percent of the capacity

Break-even volume

Break-even as a percent of capacity =

Capacity

125

= 41.67%

100%

300

Therefore, the break-even as a percent of capacity is 41.67%.

Example 3.2 (b)

Using Break-Even Charts for CVP Analysis

Answer the following referring to Example 7.5(a).

(i) What was the amount of profit or loss if 210 chairs were produced and sold in a month?

(ii) What was the amount of profit or loss if 60 chairs were produced and sold in a month?

(iii) What is the maximum profit that can be expected in a month?

Graphical Approach For Cvp Analysis (Break-Even Chart) Worksheet - Chapter 3 Page 3