Break-even chart - meaning and assumption

Break-even chart According to the Chartered Institute of Management Accountants, London, the break-even chart means “a chart which shows profit or loss at various levels of activity, the level at which neither profit nor loss is shown being termed as the break-even point”. It is a graphic relationship between costs, volume, and profits. It shows not only the BEP but also the effects of costs and revenue at varying levels of sales. The break-even chart can, therefore, be more appropriately called the cost-volume-profit graph.

Assumptions regarding Break-Even Charts are as follows:

Costs are bifurcated into variable and fixed components.
Fixed costs will remain constant and will not change with change in the level of output.
Variable cost per unit will remain constant during the relevant volume range of graphs.
The selling price will remain constant even though there may be competition or change in the volume of production.
The number of units produced and sold will be the same so that there is no operating or closing stock.
There will be no change in operating efficiency.
In the case of multi-product companies, it is assumed that the sales mix remains constant.