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Break-even chart -meaning and assumption

Break-even chart According to the Chartered Institute of Management Accountants, London the break-even chart means “a chart which shows profit or loss at various levels of activity, the level at which neither profit nor loss is shown being termed as the break-even point”. It is a graphic relationship between costs, volume and profits. It shows not only the BEP but also the effects of costs and revenue at varying levels of sales. The break-even chart can therefore, be more appropriately called the cost-volume-profit graph.

Assumptions regarding Break-Even Charts are as under:

  • (Costs are bifurcated into variable and fixed components.
  • Fixed costs will remain constant and will not change with change in level of output.
  • Variable cost per unit will remain constant during the relevant volume range of graph.
  • Selling price will remain constant even though there may be competition or change in volume of production.
  • The number of units produced and sold will be the same so that there is no operating or closing stock.
  • There will be no change in operating efficiency.
  • In case of multi-product companies, it is assumed that the sales mix remains constant.

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