Question

When a firm plots its sales volume and total revenue on a CVP graph, the resulting point falls above the fixed-cost line, to the right of the total-cost line, and to the left of the sales line. This tells us that the firm is:

A) making a profit.
B) breaking even.
C) losing money.
D) covering its fixed costs but not its variable costs.

Answer 1

A firm's point on a CVP graph above the fixed-cost line and to the right of the total-cost line indicates it is making a profit, as evidenced by its total revenue exceeding total costs.

Step-by-step explanation:

When a firm's sales volume and total revenue point falls above the fixed-cost line, to the right of the total-cost line, and to the left of the sales line on a CVP (Cost-Volume-Profit) graph, this indicates that the firm is making a profit. To understand this further, consider that at a quantity of 40, with a price of $16, the firm's total revenue would be $640 and its total cost would be $580, resulting in a profit of $60. These values can be visualized on a CVP graph where the firm's total revenues create a rectangle with a quantity of 40 on the horizontal axis and a price of $16 on the vertical axis.