PROFIT VOLUME CHART

Rishaana Dhavanathan

EU/IS/2008/MS/57

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.

PROFIT VOLUME GRAPH

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.

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 variable.

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. Variable 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 annum. 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 Fixed cost Profit Rs.(35-33) 140 000 45 000 95 000

The point is joint to the loss at zero activity, Rs.45000 that is the fixed cost.

100 80 60 40
Profit

(b) (a)

20 0 (20) (40) (60) `

break event poin (a)

10

20

30

40 Units

50

60

70

break even point (b)