Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 19

Profit Equation Components

Identify each of the following profit equation components on the graph that follows:

a. The total cost line.

---

b. The total revenue line.

---

c. The total variable costs area.

---

d. Variable cost per unit.

---

e. The fixed costs area.

---

f. The break-even point.

---

g. The profit area (range of volumes leading to profit).

---

h. The loss area (range of volumes leading to loss).

Step 1 of 4

Profit Equation Components

The profit equation is the key to CVP analysis. The components of the profit equation are operating profit, total revenues, and total costs. The operating profit is equal to the difference of total revenues and total costs. The profit equation is provided below:

The break-even point is the point at which total costs equal total revenues.