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.

Question

Quizplus · Accepted Answer

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).

Which of the Following Statements Is Correct with Regard to a Cost-Volume-Profit