Data extracted from the accounting information system of TXC Corporation produced the following graph. The equation of the dashed line is y = $25x; the equation of the solid line is y = $200 + $5x. The area to the left of the point where the two lines intersect, where the dashed line is below the solid line, shows where TXC
A) Operates at a loss
B) Operates at a profit
C) Breaks even if product mix remains constant
D) Cannot be determined

Question

Data extracted from the accounting information system of TXC Corporation produced the following graph. The equation of the dashed line is y = $25x; the equation of the solid line is y = $200 + $5x.  The area to the left of the point where the two lines intersect, where the dashed line is below the solid line, shows where TXC
A) Operates at a loss 
B) Operates at a profit 
C) Breaks even if product mix remains constant 
D) Cannot be determined

Quizplus · Accepted Answer

The point of intersection is approximately (8, $200+$40=$240). This means that when TXC produces less than 8 units, the cost of production (dashed line) is less than the revenue earned (solid line), resulting in a profit. However, when TXC produces more than 8 units, the cost of production exceeds the revenue earned, resulting in a loss. Therefore, the area to the left of the point of intersection represents where TXC operates at a loss.

Data Extracted from the Accounting Information System of TXC Corporation