On a CVP Graph, in the Area Where the Revenue

question 122

Multiple Choice

On a CVP graph, in the area where the revenue line appears below the total cost line, the vertical distance separating the two lines represents what?

• A)Contribution margin
• B)Operating loss
• C)Operating income
• D)Variable costs

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Definitions:

Payback Method

A capital budgeting technique that calculates the time required to recoup the initial investment through cash inflows.

Accounting Rate

Often refers to the accounting rate of return (ARR), a financial ratio used to measure the profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.

Investment Allowance

A tax benefit that allows businesses to deduct a percentage of certain capital expenditures from their taxable income.

Tax Deduction

Expenses subtracted from gross income to determine taxable income, which can reduce the amount of tax owed.