1. The breakdown point graph shows the relationship between cost, yield, and profit or loss for each stage of production.
2. The total cost line is an addition of fixed cost and cost changed the result as follows:
3. The total revenue line is the proportion with the amount of expenditure as follows:
4. The break point is the point of intersection between the total revenue line and the total cost as follows:
- at the break-even point level, the total revenue is equal to the total cost. Firms do not earn any profit or bear any loss
- for release that exceeds the break-even point, profit is obtained
- for release less than the break even point, the loss is experienced
EXAMPLE
Soon Lee Berhad Company is a firm that manufactures T-shirts for school students. The following are details about the withdrawal.
i) In the graph, the horizontal axis (x-axis) shows the output unit at scale 1 cm = 500 units. A vertical axis (y-axis) shows costs and yields with a scale of 1 cm = RM5,000
ii) The break-even point for this firm was on the production of 2,000 T-shirts. At this point, the result was the same as the cost of RM20,000
iii) Soon Lee Company will gain profits when production exceeds 2,000 units and instead incurred losses of less than 2,000 units
iv) For each of the following production stages, the Soon Lee Company gain or loss is as follows:
