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A higher contribution to sales ratio implies that
Afixed cost falls as output rises
Bvariable cost per unit rises with output
Cprofit grows faster once break-even is passed
Dthe break-even point moves further away
Answer & Solution
Correct answer: C. profit grows faster once break-even is passed
1. The P/V ratio is the share of each rupee of sales left after variable cost.
2. Once break-even is reached, fixed cost is already covered.
3. From that point every extra rupee of contribution drops through to profit.
4. So a higher ratio means profit grows faster than for a product with a lower ratio.
_Source: ICAI Cost and Management Accounting Ch14 'Marginal Costing', section 14.7.2_
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