ECONOMICS

Detailed explanation-1: -Onto this, plot a horizontal fixed costs line-it is horizontal because fixed costs don’t change with output. Then plot a line to represent variable cost starting at the same point as the fixed costs line. Because the variable costs line is drawn above the fixed costs line, it becomes the total costs line.

Detailed explanation-2: -The horizontal (X) axis shows your output in units while the vertical (Y) axis shows your costs and revenue. You plot a straight horizontal line of fixed costs across the graph, as these don’t change with the number of units produced. Then you plot a line for variable costs, starting at the point fixed costs start.

Detailed explanation-3: -Graphically Representing the Break Even Point The red line represents the total fixed costs of $100, 000. The blue line represents revenue per unit sold. For example, selling 10, 000 units would generate 10, 000 x $12 = $120, 000 in revenue. The yellow line represents total costs (fixed and variable costs).

Detailed explanation-4: -Fixed costs are costs that remain the same regardless of how many units are sold. Break-even analysis looks at the level of fixed costs relative to the profit earned by each additional unit produced and sold. In general, a company with lower fixed costs will have a lower break-even point of sale.

Detailed explanation-5: -A Break-Even Chart is constructed on a graph paper. Activity or volume of production is plotted on the ‘X’ axis, whereas cost and revenue are plotted on the ‘Y” axis.