Module 4 • Financial feasibility study


2 Calculate and draw your total cost line: Choose any volume of tables that you could make (100). Your total costs (fixed and variable costs) for 100 tables are: Fixed costs + Variable costs =R3000 + (100 × R30) =R6000 (C).


Plot this point C on the graph. This is done by drawing a line vertically from 100 and horizontally from R6000. The two lines meet at C. Draw a line through this point starting at point A. It is indicated as AC. You start at point A since you have to include


3 Calculate and draw your income line – see graph below: Choose any volume of sales i.e. 120 tables. Calculate the total selling price for 120 tables: R50 × 120 = R6000 (D).


your fixed costs whether you manufacture Zero tables or 100 tables. C


2 000 4 000 6 000 8 000 10 000 12 000


Variable costs A Fixed costs


Plot point D the same way you plotted point C. Draw a line starting in the corner (E). E


20


The reason is that you are now dealing with the selling price of your tables. If you sell zero tables then your income will be zero. Draw a line ED through this point D starting at E.


The break-even point is where line ED and AC cross. The break-even units and break-even volume can now easily be read from the graph. The break-even point is 150 tables or R7500.


2 000 4 000 6 000 8 000 10 000 12 000


2 000 4 000 6 000 8 000 10 000 12 000


C D A E 20 G Break-even Point


60 100 140 180 220 F


120 X-Axis Tables C D A E 20 G


60 100 140 180 220 X-Axis Tables


120 B B


60 100 140 180 220 X-Axis Tables


Break-even Point F B


2 000 4 000 6 000 8 000 10 000 12 000


C Variable costs A Fixed costs E 20


60 100 140 180 220 X-Axis Tables


B


85


Y-Axis Sales - R


Y-Axis Sales - R


Y-Axis Sales - R


Y-Axis Sales - R


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