In a cost-volume-profit chart, the

Question

BlackTom AI · Accepted Answer

Total cost in a CVP (cost-volume-profit) chart is expressed as TC = TFC + (VC per unit) × Q. This equation identifies the key components: total fixed cost (TFC) is constant regardless of quantity, variable cost per unit (VC per unit) is the incremental cost for each additional unit, and Q is quantity (volume).

Step-by-step reasoning:
1. Write the equation: TC(Q) = TFC + (VCu)·Q.
2. Evaluate the equation at Q = 0: TC(0) = TFC + (VCu)·0 = TFC. That means when no units are produced or sold, total cost equals total fixed cost. On a graph with vertical axis = dollars and horizontal axis = quantity, the total cost line crosses the vertical axis at the amount TFC (the intercept).
3. Identify the slope: the rate at which TC increases with Q is d(TC)/dQ = VCu. Thus the slope equals variable cost per unit, not anything to do with fixed cost.
4. Visual interpretation: draw a straight line starting at the vertical intercept TFC and rising with slope VCu. The total revenue line typically starts at zero (if no fixed revenue) and slope equals price per unit; break-even is where revenue and total cost cross.

Why the correct option is correct:
- Because TC(0) = TFC, the total cost line must begin at the total fixed cost value on the vertical axis.

Why the other choices are incorrect:
- “Total cost line begins at zero”: false unless TFC = 0; in general fixed costs exist so intercept is TFC, not zero.
- “Slope of the total cost line is dependent on the fixed cost per unit”: incorrect terminology—fixed cost per unit is not a standard; the slope depends on variable cost per unit.
- “Total cost line normally ends at the highest sales value”: a plotted line is drawn over a chosen range, but “ending” at highest sales is not a defining property; the key defining feature is the intercept at TFC.

Conclusion: The total cost line begins at the total fixed cost value on the vertical axis, which matches the provided correct answer.

In a cost-volume-profit chart, the Single choice

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