Break-Even Chart is the most useful graphical representation of marginal costing. It converts accounting data to a useful readable report. Estimated profits, losses, and costs can be determined at different levels of production. Let us take an example.
Calculate break-even point and draw the break-even chart from the following data:
Fixed Cost = Rs 2,50,000
Variable Cost = Rs 15 per unit
Selling Price = Rs 25 per unit
Production level in units 12,000, 15,000, 20,000, 25,000, 30,000, and 40,000.
Fixed CostContribution per unit
Rs 2,50,000Rs 10 × (Rs 25 – Rs 15)
= 25,000 units
At production level of 25,000 units, the total cost will be Rs 6,25,000.
(Calculated as (25000 × 14) + 2,50000)
|Statement showing Profit & Margin of safety at different level of production Break Even Sale = Rs 6,25,000 (25,000 x 25)|
|Production(In Units)||Total Sale(In Rs)||Total Cost(In Rs)||Profit(Sales – Cost)(In Rs)||Margin of safety(Profit/Contribution per unit)(In Units)|
The corresponding chart plotted as production against amount appears as follows: