Final answer:
A CVP graph shows the break-even point where profit is zero, and it is useful for identifying the profit maximization level of output. It can also help determine the zero-profit point and the shutdown point, which are critical for decision-making in business operations.
Step-by-step explanation:
Among the given options regarding a CVP (Cost-Volume-Profit) graph, the correct statement is that a CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line. The break-even point is the level of sales at which profit is zero; above this point, the company is in a profitable zone, and below this point, it will incur losses. The difference between total revenue and total cost at various levels of output is used to calculate the quantity of output that will provide the highest level of profit. At this optimal output level, total revenue exceeds total cost by the largest amount, which can be visually identified on the graph where the gap between the total revenue and total cost lines is the greatest.
On the CVP graph, it's also possible to evaluate situations like the zero-profit point and the shutdown point. The zero-profit point is where the company is not making a profit but also not incurring losses, and the shutdown point is where it becomes preferable for a company to cease operations rather than continue operating at a loss. This is determined by where the price is equal to the average variable cost.