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4.2.3.4 Construction Of Break-Even Chart The following steps are required to be taken while constructing the Break-even chart: 1. Sales volume is plotted on the
4.2.3.4 Construction Of Break-Even Chart The following steps are required to be taken while constructing the Break-even chart: 1. Sales volume is plotted on the x-axis. Sales volume can be shown in the form of rupees, units or as a percentage of capacity. A horizontal line is drawn spacing equal distances showing sales at various activity levels. 2. Y axis represents revenues, fixed and variable costs. A vertical line is also spaced in equal parts. 3. Draw the sales line from point o onwards. Cost lines may be drawn in two ways (i) fixed cost line is drawn parallel to x axis and above it variable cost line is drawn from zero point of fixed cost line. This line is called the total cost line (fig.1) (ii) in the second method the variable cost line is drawn from point o and above this, fixed cost line is depicted running parallel to the variable cost line. This line may be called total cost line. (fig.2) 228 4. The point at which the total cost cuts across the sales line is the break-even point and volume at this point is break-even volume. 5. The angle of incidence is the angle between sales and the total cost line. It is formed at the intersection of the sales and the total cost line, indicating the profit earning capacity of a firm. The wider the angle the greater is the profit and vice versa. Usually, the angle of incidence and the margin of safety are considered together to show that a wider angle of incidence coupled with a high margin of safety would indicate the most suitable conditions. Illustration 9: from the following information, prepare a break-even chart Showing the break-even point. Budget output 80,000 units Rs.4,00,000 Selling price per unit Rs. 20 Variable cost per unit .... Rs. 10 Fixed expenses
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