Asked by China lilian on Apr 27, 2024

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Which of the following statements is correct with regard to a Cost-Volume-Profit graph?

A) A Cost-Volume-Profit graph shows the maximum possible profit.
B) A Cost-Volume-Profit graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.
C) A Cost-Volume-Profit graph assumes that total expense varies in direct proportion to unit sales.
D) A Cost-Volume-Profit graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.

Cost-Volume-Profit Graph

A visual representation showing the relationship between a company's costs, sales volume, and profits at various levels of activity.

Break-Even Point

The level of production or sales at which total revenues equal total expenses, resulting in no net loss or gain.

Operating Leverage

The degree to which a company uses fixed operating costs, with all else being equal, the higher the operating leverage, the more sensitive net operating income is to a given percentage change in sales.

  • Grasp the Cost-Volume-Profit analysis concepts and their graphical representation.
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Colin MacKenzieMay 02, 2024
Final Answer :
B
Explanation :
A Cost-Volume-Profit graph is used to show the relationship between sales volume, expenses, and profits. The break-even point is the point where the total sales revenue line intersects with the total expense line. This is the point where the company is not making a profit or a loss. It is important to note that a Cost-Volume-Profit graph does not show the maximum possible profit (A), assumes a linear relationship between total expense and unit sales (C), and does not show operating leverage (D).