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Hi John, Please help on this:
Q7. In a profit-volume chart, what does the point at which the contribution line touches the vertical axis represent?
A. Total Fixed costs
B. Total Contribution
C.Breakeven Point
D. Total Variable CostsWhy is the answer A. Total Fixed costs.
Where did you find this question? I ask because either you have copied it wrong, or there is a mistake in your book.
A profit volume chart shows the profit as against the sales.
When sales are zero, then there is a loss equal to the fixed overheads, and so the profit line crosses the vertical axis at a point equal to the fixed costs (I illustrate this in my free lectures on CVP analysis).
If we were to draw the contribution line on the same graph, then this would cross the vertical axis at zero, because there would be no contribution when sales are zero.
it was on another website. Copied from there. I asked this question because even I had thought of the same answer for contribution line. Thanks John for clarifying!!
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