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

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

Quizplus · Accepted Answer

At point D, the company is selling enough units to cover its fixed costs and reach the break-even point. Therefore, the Y-axis value at point D represents the total revenue earned by the company, which is equal to the total variable costs plus the total fixed costs. The contribution margin ratio (CM ratio) is defined as (Unit Selling Price - Unit Variable Costs) / Unit Selling Price. By rearranging the formula, we can get the contribution margin per unit, which is equal to the Unit Selling Price - Unit Variable Costs. Therefore, the Y-axis value at point D can be calculated by dividing the Fixed Costs by the Contribution Margin Ratio. The correct formula is: Y-axis value ($) at point D = Fixed Costs / Contribution Margin Ratio. Therefore, choice D is the best answer.

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