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CMA Intermediate · Management Accounting · Marginal Costing (Management Accounting)

On a conventional break-even chart, where sales revenue and total cost lines are plotted against output, what does the vertical gap between the sales line and the total cost line to the right of the break-even point represent?

The vertical gap between the sales line and the total cost line beyond the break-even point represents profit. Total cost already includes fixed and variable costs, so any excess of sales over it is profit; contribution is instead the gap from the variable cost line.

  1. AFixed cost
  2. BProfitCorrect
  3. CContribution
  4. DMargin of safety in units

Explanation

On a conventional chart, total cost = fixed + variable cost. Beyond break-even, sales exceed total cost, and the vertical gap is profit. Contribution is shown as the gap between sales and the variable cost line, which appears only on a contribution break-even chart, so it is wrong here. Margin of safety is a horizontal distance along the output axis, not a vertical gap.

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