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    Question

    Which of the following statements is CORRECT regarding

    the Profitā€“Volume (P/V) ratio?
    A It shows the relationship between fixed cost and profit Correct Answer Incorrect Answer
    B It indicates contribution per unit of sales Correct Answer Incorrect Answer
    C It remains constant even when selling price changes Correct Answer Incorrect Answer
    D It increases when variable cost per unit increases Correct Answer Incorrect Answer
    E It is calculated using net profit and sales Correct Answer Incorrect Answer

    Solution

    Solution:

    • P/V ratio = Contribution / Sales
    • Contribution represents sales minus variable cost
    • Hence, P/V ratio shows contribution earned from each rupee of sales
    • It changes if selling price or variable cost changes

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