The following diagram is a cost-volume-profit graph for a manufacturing company: Select the answer that best describes the labeled item on the diagram.

A) Area CDE represents the area of net loss.
B) Line AC graphs total fixed costs.
C) Point D represents the point at which the contribution margin per unit increases.
D) Line AC graphs total costs.

Question

The following diagram is a cost-volume-profit graph for a manufacturing company: Select the answer that best describes the labeled item on the diagram.

A) Area CDE represents the area of net loss. 
B) Line AC graphs total fixed costs. 
C) Point D represents the point at which the contribution margin per unit increases. 
D) Line AC graphs total costs.

Quizplus · Accepted Answer

Line AC graphs total costs, as it represents the sum of fixed costs and variable costs at every level of output. Area CDE does not necessarily represent net loss, as it depends on the sales revenue generated at that level of output. Point D does not represent an increase in contribution margin per unit, as it is simply the point where total revenue equals total cost (i.e. the break-even point).

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