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ACCA Applied Skills · Performance Management · Cost-volume-profit analysis (CVP)

Which statement about a conventional break-even chart and a profit-volume chart is correct?

The profit-volume chart plots profit or loss directly against activity, starting at a loss equal to fixed costs, while the conventional break-even chart plots revenue and cost lines so profit is read as the gap between them.

  1. AThe profit-volume chart shows profit or loss directly against activity, whereas the break-even chart shows costs and revenueCorrect
  2. BThe break-even chart plots profit directly on the vertical axis
  3. CThe profit-volume chart shows fixed costs as a horizontal line above the axis
  4. DThe break-even chart shows the C/S ratio as the slope of the total cost line

Explanation

A profit-volume chart plots profit or loss on the vertical axis, so the line starts at minus fixed costs and its slope is contribution per unit (or the C/S ratio if sales value is used). A break-even chart plots cost and revenue lines. Profit is not read directly from a conventional break-even chart.

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