A cost volume profit shows how costs, revenues, and profits vary with volume
(sales). You can either plot total cost, or fixed and variable costs, which
add up to total costs.
One way to show this is to make a break-even chart. Put unit sales (number
of items sold) in the first column, fixed costs in the second (which are a
constant), variable costs in the third column (these are typically a
straight line through zero), and in the fourth insert formulas that sum
fixed and variable costs to make total costs. If you want you can skip the
fixed and variable costs. In the next column, enter sales revenue. Select
the sales and cost data, and create an XY chart. The total costs is an
upward sloping line, and you'd better hope sales revenue is also upward
sloping, but steeper. Where the lines cross is the breakeven point, above
which additional sales bring in more revenue than they cost.
You can also show profit, which is revenue minus costs. In the column after
revenue above, enter formulas that subtract cost from revenue. Make another
XY chart, again using units sold as X, but this time use Profit as your Y
value. Profit starts out negative, but it crosses zero at the breakeven
point and increases further as units sold increases.
- Jon
