On the Break Even Chart below indicate clearly the following:
Total Cost Line, Revenue Line, Margin of Safety, Fixed Costs Line, Break Even Point - Leaving Cert Business - Question 10 - 2004
Question 10
On the Break Even Chart below indicate clearly the following:
Total Cost Line, Revenue Line, Margin of Safety, Fixed Costs Line, Break Even Point.
Sales / costs
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Worked Solution & Example Answer:On the Break Even Chart below indicate clearly the following:
Total Cost Line, Revenue Line, Margin of Safety, Fixed Costs Line, Break Even Point - Leaving Cert Business - Question 10 - 2004
Step 1
Total Cost Line
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Answer
To represent the Total Cost Line, draw a straight line starting from the y-axis (where costs are displayed) at the Fixed Costs level. This line should slope upwards to indicate that as output increases, total costs (the sum of fixed and variable costs) also increase.
Step 2
Revenue Line
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Answer
The Revenue Line should start from the origin (0,0) and be drawn upwards, illustrating that as sales units increase, revenue also increases. This line typically has a steeper slope than the Total Cost Line if prices exceed average costs.
Step 3
Margin of Safety
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Answer
The Margin of Safety represents the area between the Break Even Point and the current sales level. On the graph, shade the area above the Break Even point (where the Revenue Line is above the Total Cost Line) to visually indicate the Margin of Safety.
Step 4
Fixed Costs Line
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Answer
The Fixed Costs Line is horizontal and should be drawn parallel to the x-axis at the level of fixed costs. This line does not change with the level of output since fixed costs remain constant regardless of sales or production levels.
Step 5
Break Even Point
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Answer
The Break Even Point is where the Total Cost Line intersects the Revenue Line. Mark this point clearly on the graph, as it indicates the level of sales at which total costs equal total revenue, resulting in zero profit or loss.
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