The following diagram is a cost-volume-profit graph for a manufacturing company: 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

The following diagram is a cost-volume-profit graph for a manufacturing company: 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

Area BAC represents the total fixed costs because it is the portion of the graph that lies below the breakeven point where total revenue equals total expenses. The difference between line AB (total revenue) and line AC (total variable cost) is the contribution margin, not the contribution ratio or contribution margin per unit.

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