When unit variable cost falls by ₹2 and selling price is unchanged, P/V ratio:
AStays the same
BDecreases
CIncreases
DBecomes negative
Answer & Solution
Correct answer: C. Increases
1. Contribution per unit = Selling price − Variable cost.
2. Lowering variable cost while holding price raises contribution per unit.
3. P/V ratio = Contribution / Sales rises with higher contribution.
4. Hence the P/V ratio increases.
_Source: ICAI BoS Inter Paper 3, Ch 14 "Marginal Costing", §14.4 ¶4_
Related questions
At the break-even point,A higher contribution to sales ratio implies thatIf the margin of safety is 21.875 per cent of sales, break-even sales are what share of saMargin of safety isFixed cost is 1,50,000 and contribution per unit is 15. Units needed to earn a profit of 2Fixed cost is 1,50,000 and contribution per unit is 15. The break-even point in units isSelling price is 30 per unit and variable cost is 15 per unit. The P/V ratio isContribution is defined as