Figure 8-6
The following diagram is a cost-volume-profit graph for a manufacturing company:
-Refer to Figure 8-6. The difference between line AB and line AC (area BAC) is the
A)contribution ratio.
B)total variable cost.
C)contribution margin per unit.
D)total fixed cost.

Question

Figure 8-6
The following diagram is a cost-volume-profit graph for a manufacturing company: 
-Refer to Figure 8-6. The difference between line AB and line AC (area BAC) is the
A)contribution ratio. 
B)total variable cost. 
C)contribution margin per unit. 
D)total fixed cost.

Quizplus · Accepted Answer

The area BAC represents the total fixed costs, as it is the difference between the total sales revenue (represented by line AB) and the total variable costs (represented by line AC). Therefore, the correct answer is option B, total fixed cost. The other options are incorrect because they represent different concepts: contribution ratio (the percentage of each sale that contributes to covering fixed costs and generating profit), contribution margin per unit (the amount by which the selling price of a unit exceeds its variable cost), and total variable cost (the cost that varies proportionally with the level of production and sales).

Figure 8-6 The Following Diagram Is a Cost-Volume-Profit Graph for a Manufacturing