A break-even chart is a chart that shows the sales volume level at which total costs equal sales. Losses will be incurred below this point, and profits will be earned above this point.
A profit-volume (PV) chart is a graphic that shows the earnings (or losses) of an entity in relation to its volume of sales. Entities can use profit-volume (PV) charts to establish sales goals, analyze whether new products are likely to be profitable, or estimate break-even points.
The following are the difference between break even chart and profit volume chart:
- In the profit volume chart, only one line is shown (profit line), whereas in the break-even chart, the profit line is not shown instead, sales and cost lines are shown.
- The profit volume chart profit line starts below the horizontal line. The fixed cost incurred at zero points of production indicates a loss. This loss is indicated below the horizontal line. Meanwhile, in the break-even chart, all lines are drawn above the horizontal line. The area up to the point of break-even shows loss and the area beyond the point shows a profit.
- The profit volume charts show profit and loss at different sales whereas break-even charts can be drawn even to show the various elements of cost and profit appropriation.
- In the profit volume chart, it is possible to measure the impact of an individual product in the sales mix, whereas the break-even chart shows the effect of sales mix only in aggregate. For different items of sales, separate charts are to be prepared.
- In profit volume charts break-even point is found on the horizontal axis whereas in break-even chart the break-even point is at the intersection of cost and sales line.
- In profit volume chart fixed cost is always considered as fixed and the ratio of sales and variable costs is again assumed as constant at different levels of sales while in break-even chart it is possible to measure the break-even point even when the sales line is a curve because of price changes at the different volume of sales.