Prepare a CVP graph or breakeven chart.

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The relationships among revenue, cost, profit and volume can be expressed graphically by preparing a cost-volume-profit (CVP) graph or break even chart. A CVP graph highlights CVP relationships over wide arrays of task and also deserve to give supervisors a perspective that have the right to be obtained in no other way.

Preparing a CVP Graph or Break-Even Chart:

In a CVP graph some times called a break even chart unit volume is commonly represented on the horizontal (X) axis and dollars on the vertical (Y) axis. Preparing a CVP graph involves 3 procedures.

1. Draw a line parallel to the volume axis to current total fixed expenses. For example we assume full fixed costs $35,000.


2. Choose some volume of sales and also plot the allude representing complete prices (addressed and variable) at the activity level you have actually selected. For example we choose a level of 600 systems. Total prices at that activity level is as follows:

Fixed Expenses$35,000
Variable Expenses (150×600)$90,000
Total Expenses$125,000

After the suggest has been plotted, attract a line via it earlier to the suggest where the fixed prices line intersects the dollars axis.

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3. Aobtain pick some volume of sales and also plot the suggest representing complete sales dollars at the activity level you have actually selected. For example we have liked a volume of 600 units. sales at this task level are $150,000 (600systems × $250) draw a line through this suggest earlier to the origin. The break even allude is wbelow the complete revenue and complete expense lines cross. See the graph and also note that break also suggest is at 350 units. It implies as soon as the company sells 350 systems the profit is zero. When the sales are listed below the break even the firm suffers a loss. When sales are over the break even suggest, the agency earns a profit and the dimension of the profit increases as sales rise.

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