Profit Volume Graph

This article describes the Profit Volume in consise bullet points to summarise the important information of this concept. Profits are read directly from a profit-volume graph, rather than being computed as the difference between total revenues and total costs.

Profit Volume Graph

Posted Wed, 03/24/2010 - 22:56 by administrator

This article is part of a tutorial.
Tutorial Index page - Break Even Chart Basics

Tutorial sections

A concise bullet-point explanation of the Profit Volume Graph.

 

Profit Volume Graph Image

 

  • Profit or loss is measured on the vertical axis, and volume (total revenues) is measured on the horizontal axis, which intersects the vertical axis at zero profit.
  • A single line, representing total profit, is drawn intersecting the vertical axis at zero sales volume with a loss equal to the fixed costs.
  • The profit line crosses the horizontal axis at the break-even sales volume.
  • The profit or loss at any volume is depicted by the vertical difference between the profit line and the horizontal axis.
  • The slope of the profit line is determined by the contribution margin.
  • The greater the contribution margin ratio or the unit contribution margin, the steeper the slope of the profit line.
  • A profit-volume-graph illustrates the relationship between volume and profits.
  • It does not show revenues and costs.
  • Profits are read directly from a profit-volume graph, rather than being computed as the difference between total revenues and total costs.

 

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