EX 21-17 Cost-volume-profit chart

For the coming year, Loudermilk Inc. anticipates fixed costs of $600,000, a unit variable cost of $75, and a unit selling price of $125. The maximum sales within the relevant range are $2,500,000.

a. Construct a cost-volume-profit chart.
b. Estimate the break-even sales (dollars) by using the cost-volume-profit chart constructed in part (a).
c. What is the main advantage of presenting the cost-volume-profit analysis in graphic form rather than equation form?


Answer:

a.
Total Sales Line
Operating
Profit Area
$2,500,000 BreakEven
Point
$2,000,000
$1,500,000
$1,000,000
$600,000
$500,000
$0
Total
Costs
Operating
Loss Area
0 4,000 8,000 12,000 16,000 20,000
Units of Sales






b. $1,500,000 (the intersection of the total sales line and the total costs line)

c. The graphic format permits the user (management) to visually determine the break-even point and the operating profit or loss for any given level of sales.