Break-even charts

A typical break-even chart is used with production models to predict optimum production levels, break-even points, and shutdown conditions under various scenarios. These models tend to involve a reasonable amount of approximation. For example, sales revenue as a function of production level involves numerous variables and relationships that are not always weU known. Such charts, however, provide useful guides for production operations. 

It is often useful to prepare break-even charts in order to illustrate and give a clear picture of the position of a business. They can be adapted to help in showing the viability and profiles of individual projects. 

The two most common designs of break-even charts are shown in Figures 61.9 and 61.10. In both cases the y (vertical) axis is used for sales (output) and costs while the X (horizontal) axis is used for volumes, capacity or time. 

Units of output (000s) Figure 61.9 Break-even chart (1)... 

The guidance obtainable from break-even charts is limited and should be used only with other criteria in formulating decisions. The effects of policy decisions may alter the data used and vitiate or amend the results disclosed. 

Break-even chart An economic production chart depicting total revenue and total expenses as functions of operation of a processing facility. 

Break-even chart for chemical processing plant. 

THE BREAK-EVEN CHART FOR PRODUCTION SCHEDULE AND ITS SIGNIFICANCE FOR OPTIMUM ANALYSIS... 

Break-even chart for operating production plant (based on situation presented in Example 2). 

Boiling liquids, heat-transfer coefficients for, 597 Bonds, interest rate on, 248-249 Book value definition of 277 in replacement analysis, 332 Box-Wilson design, 766, 769 Break-even chart, 155-156... 

Optimum design basic principles for, 6-9, 341-342 break-even chart for, 349-350 comparison of graphical and analytical methods for, 348-349 economic, 7-8... 

Roth, R. J. Break-even Charts for the Chemical Process Industries, Chem. Eng. News, SO 6437 (1952). 

To make it easier to understand what this means and to present the information to your fellow managers, you draw the break-even chart shown in Figure 3.1. The break-even chart shows the point of intersection of the total revenue line and the total expenses line as approximately 167 widgets. 

When creating this break-even chart you first create the horizontal and vertical axes. The volume of unit sales always goes on the horizontal or x axis. The revenue or dollars always go on the vertical or y axis. Next you graph the fixed costs onto the chart. The fixed costs are a straight line, which is always parallel to the horizontal or x axis. In Figure 3.1 the fixed costs are 50,000 and are shown as a dashed line. Once the fixed costs are graphed, you then graph the... 

As was previously noted, statistics comparable to those shown in Table 11.6 were discussed with an operations executive whose degree is in finance. This conversation was highly instructive, particularly with respect to unit-pricing methods and break-even charts and why the computations to determine the additional sales necessary to cover... 

When revenues equal total operating costs, as shown in Figure 11.2, the Break-even Chart, all indirect and direct costs incurred up to that time are recovered. Also, as sales increase and operations become profitable, revenues obtained continue to encompass all additional indirect and direct costs. 

This section reviews commonly used ways of representing costs (fixed and variable, direct and indirect), and one less commonly used way (engineered and discretionary). If you are already familiar with the concepts of variable and fixed costs and break-even charts, then start at section 3.3. Bear in mind that the total cost picture is always the same the different ways of representing them are simply different ways of cutting the cake. Let us look at the total cost as a cube instead of a cake. Then the three different ways of representing costs can be shown as different ways of cutting up the cube (Figure 3.2). 

If we add the variable costs to the fixed costs against a given range of volume (so that the fixed costs remain completely fixed), and add in the sales revenue (which also increases in line with volume), we arrive at the break-even chart shown in Figure 3.5 overleaf. The sloping line that starts at O is the sales revenue. The total cost line starts at F, and represents the sum of fixed and variable costs. The point at which the sales revenue line crosses the total cost line is the breakeven point. Below this point, a loss will be incurred above it a profit will be made. A helpful concept in evaluating break-even charts is that of contribution ... 

Therefore contribution is the fixed costs plus the profit. Contribution is useful in decision making. High contribution per unit indicates a more volatile business that is, one that is more risky. Therefore we should expect a business with high contribution/unit to provide a higher return on investment in the longer term. Look at the two break-even charts in Figures 3.6 and 3.7 overleaf. What are the... 

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