![]() ![]() an amount of sales revenue (= the difference between the budgeted sales revenue and the total sales revenue required to break even).a quantity of units (= the difference between the budgeted sales volume in units and the break-even sales volume), or.It is usually expressed as a percentage of the budgeted sales. the break-even amount of sales (in units or Rs.).the budgeted sales (in units or Rs.) and.The margin of safety is the difference between: The weighted average C/S ratio is useful in its own right, as it tells us what percentage each $ of sales revenue contributes towards fixed costs. Weighted average C/S ratio = Total contribution In multi-product situations, a weighted average C/S ratio is calculated by using the formula: This assumption allows us to calculate a weighted average contribution per unit or batch and/or CS ratio which can be used to solve Break-even, margin of safety and target profit problems. It could be expressed as a ratio such as 2:3:5, or as a percentage as 20%, 30%, 50%. This is defined as the relative proportion of each product’s sale to total sales. However, the assumption has to be made that the sales mix remains constant. When a pre-determined sales mix is used, it can be depicted in the CVP Analysis by assuming average revenues and average variable costs for the given sales mix. Multi-product Break-even analysisĬVP Analysis assumes that, if a range of products is sold, sales will be in accordance with a pre-determined sales mix. The Break-even point is where this line cuts the horizontal axis. Break-even point is then reached and profits are made at sales volumes above the break-even point. The loss becomes smaller as sales volume increases, due to the higher contribution as sales volume increases. The vertical axis shows profits and losses and the horizontal axis is drawn at zero profit or loss.Īt Rs.0 sales, there is a loss equal to the total amount of fixed costs. This chart plots a single line depicting the profit or loss at each level of activity. It is a chart that shows the profit or loss at all levels of output and sales. The Break-even point can be read off where the total sales revenue line cuts the total cost line.ĭrawing a Basic Profit/volume chart (P/V chart)Ī profit volume chart (or P/V chart) is an alternative to a break-even chart for presenting CVP information. If the chart also indicates the budgeted volume of sales, the margin of safety can be shown as the difference between the budgeted volume and the break-even volume of sales. The concept of a break-even chart is similar to a cost behavior chart, but with sales revenue shown as well. the break-even point (where total costs = total sales revenue, and profit = 0).profit (= the difference between total sales and total costs).total costs, analyzed between variable costs and fixed costs.Lines are drawn on the chart to represent costs and sales revenue. A basic Break-even chart records costs and revenues on the vertical axis (y) and the level of activity on the horizontal axis (x). ![]()
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