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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Break-even chart

Name the following chart and identify the items represented by the letters (a) through (f):

images

To determine

Break-even (Cost-Volume-Profit) chart: It is a graphical representation of the relationship between the sales, costs, and the related profit or loss at various levels of units sold. In other words, it shows the effect of the changes in the cost and the sales volume on the operating income of the company.

To name and identify: the items represented by the letters (a) through (f) in the given chart.

Explanation

Name and identify the items represented by the letters (a) through (f) in the given chart.

Sl. No. Name
a. Break-even point
b. Total fixed costs
c. Operating loss area
d. Maximum operating profit
e. Profit line
f. Operating profit area

Table (1)

a.

The break-even point is the intersection point where the profit line meets at the $0 operating profit line drawn horizontally from left to right. A vertical dotted line is drawn downward from the intersection point to reach at the break-even sales (units). At this break-even level of sales units, indicates no profit no loss.

b.

The total fixed cost of ($150,000) is equal to the maximum operating loss total fixed cost at zero level of sales. The company suffers the loss of the fixed cost incurred even though there are no units produced...

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