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

Graphical Approach For Cvp Analysis (Break-Even Chart) Worksheet - Chapter 3 Page 4

Chapter 3

| Break-Even and Cost-Volume-Profit Analysis

Solution

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

If 210 chairs were produced and sold, then this was 85 chairs above the break-even volume

of 125 chairs per month; therefore, a profit was made.

The amount of profit is calculated by subtracting the value for the y-coordinate in line AD

(i.e., TC), from the y-coordinate in line OC (i.e., TR), when Q = 210.

When Q = 210, TR = $14,700.00, and TC = $11,300.00

TR - TC = 14,700.00 - 11,300.00 = $3400.00

Therefore, a profit of $3400 was made by producing and selling 210 chairs in a month.

(ii) Determining the profit or loss made if 60 chairs were produced and sold in a month

If 60 chairs were produced and sold, then this was 65 chairs below the break-even volume of

125 chairs per month; therefore, a loss was incurred.

The amount of loss is calculated by subtracting the value for the y-coordinate in line AD (i.e.,

TC), from the y-coordinate in line OC (i.e., TR), when Q = 60.

When Q = 60, TR = $4200.00, and TC = $6800.00

TR - TC = 4200.00 - 6800.00 = - $2600.00

Therefore, a loss of $2600.00 was made by producing and selling 60 chairs in a month.

(iii) Determining the maximum profit that can be expected in a month

Maximum profit can be expected at capacity, i.e., when Q = 300.

This is 175 chairs above the break-even volume of 125 chairs per month.

The amount of profit is calculated by subtracting the value for the y-coordinate in line AD

(i.e., TC), from the y-coordinate in line OC (i.e., TR), when Q = 300.

When Q = 300, TR = $21,000.00 and TC = $14,000.00

TR - TC = 21,000.00 - 14,000.00 = $7000.00

Therefore, $7000.00 would be the maximum profit per month that can be expected.

Graphical Approach For Cvp Analysis (Break-Even Chart) Worksheet - Chapter 3 Page 4