The Breakeven Chart Essay

502 Words3 Pages
The Break-even chart Knowing what the total expenses are and how to make a break-even chart is essential to good management. A correct break-even chart is valuable as a supplement to budget making pricing policies, decisions on sales policies, expense control and expansion plans, among other things. The completely competent entrepreneur should know what sales volume is necessary to break-even (the point where there is no profit or loss). A break-even chart shows the relationship of fixed, variable, and total expenses to sales at all volumes of sales. It measures all expenses and income from sales on the vertical axis and the units sold or percentage of capacity on the horizontal axis. The vertical distance between the total expense line and the sales income line measures profits at any level of capacity or at any volume of sales. An accurately drawn break-even chart can tell the entrepreneur what sales volume is necessary to reach the break-even point and the percentage of his capacity these sales volume represents. It tells him the profits to be derived from any planned expansion of sales. These relationships are measured against a presently existing set of facilities and expense analysis. Any change of store space, for example, would call for the creation of a new chart made for the expanded facilities and expenses. Making a Break-Even Chart When Percentage of Capacity Is Unknown The problem of determining at what percentage of capacity the firm operated has prevented many businessmen from making maximum use of a break-even chart. This problem can be easily resolved. A factory operation, that has machines, which can produce 100 units of its products a day, can easily determine 100 percent of its capacity. It merly multiplies working days times 100 units to find what production will be if full production is maintained during the month or year. By then

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