Question

In a chart illustrating operational gearing, the point of intersection of the total cost line (costs) with the vertical axis (value) reflects:

a. Sales price per unit.

b. Variable costs.

Answer 1

The intersection of the total cost line with the vertical axis represents the fixed costs, which are the expenses incurred even when no production occurs.

Step-by-step explanation:

The point of intersection of the total cost line with the vertical axis in an operational gearing chart reflects the fixed costs. These costs are the ones a business incurs regardless of its production level, meaning even when zero units are produced. Therefore, the vertical intercept represents the fixed costs, and as production increases, the variable costs are added to these fixed costs to give the total cost. The relationship between the quantity of output produced and the cost of producing that output is crucial for understanding cost behavior in business.