Assuming Costs Are Represented on the Vertical Axis and Volume

question 55

Multiple Choice

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that starts at the origin and reaches a maximum value and beyond the point that the line becomes parallel to the horizontal axis?

• A)total direct material costs
• B)a consultant paid £100 per hour with a maximum fee of £2,000
• C)employees who are paid £15 per hour and guaranteed a minimum weekly wage of £300
• D)rent on exhibit space at a convention

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Definitions:

Variable Expenses

Variable expenses change in proportion with business activity or production levels, such as raw materials costs, directly influenced by the volume of output.

Break-Even Point

The point at which total costs and total revenue are equal, meaning the business is not making a profit or a loss.

Net Loss

The amount by which expenses exceed revenues, indicating a negative profit.

Margin of Safety Percentage

A financial metric indicating the amount by which sales can drop before reaching the break-even point.