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Profit Volume Chart

The document defines a profit volume chart as a chart that plots a single line depicting profit or loss at different levels of activity. It shows the break even point where the line cuts the horizontal axis at zero profit or loss. The chart has advantages like clearly depicting the effect of changes in variables on profit and break even point. An example is given of a company that draws two profit volume charts - one for the original situation and one for an improved product with increased price and costs. The second chart has a higher profit level and break even point.

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540 views10 pages

Profit Volume Chart

The document defines a profit volume chart as a chart that plots a single line depicting profit or loss at different levels of activity. It shows the break even point where the line cuts the horizontal axis at zero profit or loss. The chart has advantages like clearly depicting the effect of changes in variables on profit and break even point. An example is given of a company that draws two profit volume charts - one for the original situation and one for an improved product with increased price and costs. The second chart has a higher profit level and break even point.

Uploaded by

Anonymous 0HycR53
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Profit volume chart

Definition
The profit volume chart is summary from
break even chart.
The chart plots a single line depicting the
profit or loss at each level of activity.
The break even point is where this line cut the
horizontal axis.
The advantages of profit- volume chart
The main advantage of profit-volume chart is
that it is capable of depicting clearly the effect
on profit and breakeven point of any changes
in the veriable.
The vertical axis shows profit and losses and
the horizontal axis is drawn at zero profit or
loss
The horizontal axis represents the volume
sales.
The vertical axis represents the profit and loss
condition.

7-5
Profit-Volume Graph
`
100 200 300 400 500 600 700
Units
P
r
o
f
i
t
0
100,000
(20,000)
(40,000)
(60,000)
80,000
60,000
40,000
20,000
Break-even
point
Fixed cost
Example
A company manufactures a single product which incurs fixed
cost of rs.30000 per annum. Annual sales are budget to be
70000 unit at a sales price of rs.30 per unit. Veriable cost
rs.28.50per unit
a) draw a profit-volume graph and use it to determine break
even point.
The company is now considering improving the quality of the
product and increasing the selling price to rs.35 per unit.sales
volume will be unaffected,but fixed costs will increase to
rs.45000 per annmum. And variable cost to rs.33 per unit.
b)draw on the same graph as for part (a) a second profit
volume graph
Situation (a)

the profit for sales of 70000 units is Rs.75000

Contribution70000 Rs(30-28.50) 105 000
Fixed cost 30 000
Profit 75 000

This point is joined to the loss at zero activity
Rs.30000 that is fixed cost.

















Situation (b)
the point of sale of 70000 unit is rs.95000.
contribution 70000 Rs.(35-33) 140 000
fixed cost 45 000
profit 95 000
Answer
(b)
(a)
break event poin (a)
`
break even point (b)
(20)
(40)
(60)
80
60
40
20
P
r
o
f
i
t
0
100
10 20 30 40 50 60 70
Units
conclusion

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