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

question 120

Multiple Choice

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.

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Definitions:

Hard Rationing

A situation in corporate finance where there is a strict limit on the amount of new equity a company can issue.

Operating Cash Flow

Operating cash flow refers to the cash generated by a company's normal business operations, indicating whether a company is able to generate sufficient positive cash flow to maintain and grow its operations.

Variable Costs

Expenses that change in proportion to the amount of goods produced or the extent of services rendered.

Sales Quantity

The total number of units of a product sold in a particular period.