Which of the Following Statements About a Cost-Volume-Profit Graph Is

question 3

Multiple Choice

Which of the following statements about a cost-volume-profit graph is correct?

• A) A cost-volume-profit graph is prepared with activity (number of units) on the vertical axis.
• B) The intersection of the total sales line and the total cost line represents the break-even point.
• C) The area above the break-even point represents the area of loss.
• D) The total cost line intersects the vertical axis at the dollar amount of total variable costs.

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Definitions:

FIFO

The first-in, first-out accounting method of inventory valuation.

LIFO

The last-in, first-out accounting method of valuing inventories.

Economic Earnings

The real flow of cash that a firm could pay out without impairing its productive capacity.

Liquidity Ratio

A financial metric used to determine a company's ability to pay off its short-term debts with its current assets.