It carried three broad lines of merchandise audio

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Unformatted text preview: a + bx This means that the fundamental profit equation can be shown as: Profit = px - (a + bx) Graphically, we can represent the formula as follows: px $ a+bx bx a 0 x1 Volume ____________________________________________________________________________________________________________ David W. Young • Management Accounting for Managers • Chapter 2 Page 31 Copyrighted Material. Do not reproduce without written permission. Point x1, where px = a + bx is the breakeven volume—it is the point at which total revenue, px, equals total costs, a+bx. With volume in excess of x1, the organization earns a profit; below x1, it incurs a loss. To illustrate how this formula can be used, let’s assume an organization wishes to determine its breakeven volume, i.e., the volume at which profit is zero. If, for example, we know price, fixed costs, and variable costs per unit, we can solve the formula algebraically for x, which would be our breakeven volume. Similarly, if we know any three of the four items in the equation, we can solve for the fourth. ••••••••••...
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