![]() ![]() The P/V graph is a simple and convenient way to show the extent to which profits are affected by changes in the factors that affect profit.įor example, if unit selling prices, unit variable costs, and total fixed costs remain constant, the P/V graph can show how many units must be sold to achieve a target profit.Īdditionally, if the variable cost per unit can be reduced, the P/V graph shows the additional profits that can be expected at any given sales volume.Īn advantage of the P/ V graph is that profits and losses at any point in time can be read directly from the vertical scale. Points above the line measure profits while points below the line measure losses. The intersection of the profit line with the horizontal line gives the break-even point. The data used to prepare the break-even chart, as shown above, have also been used to prepare the P/V graph shown below. The vertical axis shows total profits or losses, while the horizontal axis represents units of product and sales revenue.Īn advantage of the P/V graph is that profit and losses at any point can be read directly from the vertical axis. This graph shows a direct relationship between sales and profits, and it is easy to understand.īreak-even charts and P/V graphs are often used together to benefit from the advantages of both visualizations. ![]() Profit-volume Graph (P/V Graph)Ī simpler version of the break-even chart is known as the profit-volume graph (P/V graph). However, the graph can be interpreted only within the relevant range of operations (i.e., the level of activity over which fixed costs are assumed to remain fixed). The break-even graph clearly shows the relationship between profit and volume by indicating the net profit or loss associated with any given volume of units sold. Below and to the left of the break-even point, the difference between the total cost line and the total revenue line reflects the net loss for the period.Ĭonversely, the distance between these two lines to the right of the break-even point represents the net profit for the period. The intersection of the two lines indicates the break-even point. The total cost line is the sum total of fixed cost ($3,000) and variable cost of $15 per unit, plotted for various quantities of units to be sold. ![]() The total revenue line is plotted, running from $0 at zero sales volume to $150,000 at a sales volume of 6,000 units at $25 per unit. The units sold are plotted on the horizontal axis, while total revenue is shown on the vertical axis. In plotting the graph, it is assumed that the selling price remains at $25, the variable cost remains at $15 per unit, and the fixed cost remains at $30,000 over the range of units sold. To give an example, consider how the data in the table below have been used to create the break-even chart. ![]() Graphical analysis also enables managers to identify areas of profit or loss that would occur for a broad range of sales activities. Doing so comes with the advantage of showing CVP relationships over a range of sales. Cost-volume-profit (CVP) relationships, or break-even relationships, can be visualized using graphs. ![]()
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