In graphical representation of the cost–volume relationship, the point where the 'Total revenue' line intersects the 'Total costs' line represents the:

Explanation:

Break-Even Point in Cost–Volume Relationship

• In the context of cost-volume-profit (CVP) analysis, the Break-Even Point is a critical concept that represents the level of sales at which total revenue equals total costs. At this point, there is no profit or loss—the business simply "breaks even." This is a fundamental tool for decision-making in finance and management, helping businesses determine the minimum sales volume required to avoid losses.

In graphical representation of the cost–volume relationship:

• The Total Revenue line represents the income generated from selling products or services. It starts at the origin (for zero sales) and increases linearly as the volume of sales increases.
• The Total Costs line represents the sum of fixed costs and variable costs. The fixed costs remain constant, while variable costs increase with the volume of production or sales.

The point where these two lines intersect is the Break-Even Point. At this point:

• Total Revenue = Total Costs
• Profit = 0 (no profit, no loss)

This intersection reflects the exact sales volume required to cover all costs. Any sales beyond this point result in profit, while sales below this point lead to a loss.

Break-even chart:

• The break-even analysis is the study of the cost-volume-profit (CVP) relationship.
• It refers to a system of determining that level of operations where the organization neither earns profit nor suffer any loss i.e where the total cost is equal to total sales i.e the point of zero profit (Break-even point).
• In a broader sense, it refers to a system of analysis that can be used to determine probable profit at any level of activity.
• The figure below shows the break-even chart.

The various point mentioned in the graph are:

Fixed cost:

• The cost does not change for a given period (lifetime).
• This cost is independent of the volume of production (means it doesn’t affect whether the production is large or small).
• For example, rent, tax salaries of the supervisor, cost of the machine, insurance cost, etc.

Variable cost:

• This cost varies directly and proportionally with the output.
• Higher the output, the larger the variable cost.
• For example, the cost of raw material, cost of labor, etc.

Total Cost:

• Total cost is the sum of fixed cost and variable cost.

Total revenue/sales:

• It indicates the return obtained by selling the number of units produced.
• It is directly proportional to the volume of production.

Margin of safety:

• The Margin of safety is the distance between the break-even point and output is produced.
• A large margin of safety indicates that the business can earn profit even if there is a great reduction in output.
• A small margin of safety indicates that the profit will be small even if there is a small drop in output.

Break-even point:

• It is the point of intersection of the total cost line and total revenue line.
• There is neither profit nor loss at the break-even point.