Cost concept is one of the fundamental concept of accounting which is closely related to the going-concern concept. As per this concept:
Contribution break-even chart: The chart helps in ascertaining the amount of contribution at different levels of activity besides the break-even point. In this method, the fixed cost line is drawn parallel to the X-axis. The contribution line is then drawn from the origin which goes up with the increase in output. The sales line is plotted as usual, but the question of the intersection of the sales line with the cost line does not arise. The contribution line crosses the fixed cost line and the point of intersection is treated as the break-even point. At this point, the contribution is equal to fixed expenses and there is no profit or loss. If the contribution is more than the fixed expenses, profit will arise and if the contribution is less than the fixed expenses, the loss will arise.
Mwailafu Ltd’s head office building is the only building it owns. Using professional valuers, it revalued this building on 1 January 2016, at TZS 2,100,000. Mwailafu Ltd has adopted a revaluation policy for buildings from this valuation date and has decided that the original useful life of buildings has not changed as a result of the revaluation. The building was acquired on 1 January 2006. The cost of the building on acquisition was TZS 2,500,000 and the accumulated depreciation to the 31 December 2015 amounted to TZS 500,000. The depreciation up to 1 January 2016 was depreciated evenly since acquisition. The professional valuer believes that the residual value on the building would be TZS 600,000 at the end of its useful life.