Which of the following statements is correct with regard to a CVP graph?
A) A CVP graph shows the maximum possible profit.
B) A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.
C) A CVP graph assumes that total expense varies in direct proportion to unit sales.
D) A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.

Question

Quizplus · Accepted Answer

A CVP (Cost-Volume-Profit) graph shows the break-even point as the intersection of the total sales revenue line and the total expense line. It does not show the maximum possible profit, assume that total expense varies in direct proportion to unit sales, or show the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.

Which of the Following Statements Is Correct with Regard to a CVP