【A.14.00】What about a profit-volume chart?

Briefing Note
Reading comprehension is a skill that empowers lifelong learning intelligence for a better self.
A profit-volume chart..

✅ ..also known as a cost-volume-profit (CVP) chart.

✅ ..a graphical representation of the relationship between costs, sales volume and profits.

✅ ..helps businesses understand the impact of changes in sales volume and associated costs on their profitability.

✅ ..shows a break-even point, which is the point where revenues equal total costs, and any sales volume beyond the break-even point generates a profit.

✅ ..useful to determine the amount of sales volume required to achieve a certain level of profitability or to analyse the impact of changes in costs or selling prices on profits.


To create a profit-volume chart..

1️⃣ ..determine the fixed costs of a business (e.g., rent, salaries, insurance), the variable costs per unit (e.g., cost of goods manufactured, cost of goods sold), and the selling price per unit.

2️⃣ ..plot a line showing total costs (fixed costs plus variable costs) against sales volume, and another line showing total revenue (selling price multiplies sales volume).


The break-even point..

✅ ..is the intersection of the total cost line and the total revenue line.


Any sales volume above..

✅ ..the break-even point represents a profit area.


Any sales volume below..

✅ ..the break-even point represents a loss area.


By analysing the profit-volume chart..

✅ ..can gain insights into the most profitable sales volume for a business, the impact of changes in variable costs or selling price on profits, and the amount of sales volume required to achieve a desired level of profitability.


Here is the video for dynamic comprehension..

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