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.
The answers are st... show full transcript
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 indicate the Total Cost Line, draw an upward sloping line that starts from the fixed costs on the y-axis (Sales / Costs). This line represents the total costs incurred by the business at varying levels of output.
Step 2
Revenue Line
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Answer
Draw the Revenue Line as a steeper upward sloping line, starting from the origin (0,0) point. This line shows the total revenue generated as output increases, and it should intersect with the Total Cost Line at the break-even point.
Step 3
Margin of Safety
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Answer
To depict the Margin of Safety, shade the area between the Break Even Point and the current level of output on the horizontal axis. This area represents the volume of sales above the break-even point, indicating how much sales can drop before the business reaches its loss threshold.
Step 4
Fixed Costs Line
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Answer
The Fixed Costs Line is represented as a horizontal line stretching across the graph. This line indicates that irrespective of the output level, fixed costs remain constant and do not change with the volume of production.
Step 5
Break Even Point
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Answer
Mark the Break Even Point at the intersection of the Total Cost Line and Revenue Line. This point indicates the exact level of output where total revenues equal total costs, meaning the business makes no profit or loss.
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