MI – Nov 2022 – L1 – SA – Q5 – Cost-Volume-Profit Analysis

Calculation of the Profit Volume (PV) ratio based on sales and contribution

Question

If sales increase from ₦80,000 to ₦100,000 and contribution increases by ₦4,000, what is the PV ratio?
A. 10%
B. 12%
C. 15%
D. 20%
E. 25%

Answer

D. 20%

Explanation:
The answer is “D. 20%” because the Profit Volume (PV) ratio is calculated as the increase in contribution divided by the increase in sales, multiplied by 100. The increase in sales is ₦100,000 – ₦80,000 = ₦20,000, and the increase in contribution is ₦4,000.