The following diagram is a cost-volume-profit graph for a manufacturing company: The formula to determine the Y-axis value (£) at point D on the graph is as follows:

A) Fixed costs + (Variable costs per unit × Number of units)
B) ΣXY - bΣX
C) Fixed costs/Unit contribution margin
D) Fixed costs/Contribution margin ratio

Question

The following diagram is a cost-volume-profit graph for a manufacturing company: The formula to determine the Y-axis value (£) at point D on the graph is as follows:

A) Fixed costs + (Variable costs per unit × Number of units) 
B) ΣXY - bΣX 
C) Fixed costs/Unit contribution margin 
D) Fixed costs/Contribution margin ratio

Quizplus · Accepted Answer

Point D represents the break-even point where total revenue equals total costs. The formula to determine the Y-axis value at point D is Fixed costs divided by the Contribution margin ratio. This is because the contribution margin ratio is calculated as (Selling price per unit - Variable costs per unit)/Selling price per unit, and represents the proportion of each unit sold that contributes towards covering the fixed costs and generating profit. Dividing fixed costs by the contribution margin ratio gives the number of units that must be sold to break even.

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