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      Question

      Which of the following statements is CORRECT regarding

      the Profit–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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