Question

When P/V ratio is 50% and Margin of Safety ratio is 20%, the profit on sales is ____________.

• A. 40%
• B. 30%
• C. 20%
• D. 10%

Answer 1

Answer: (D)

10%

Profit Volume ratio is proportion of contribution to sales which signifies the percentage of contribution before considering the fixed cost.

P/V Ratio= Contribution/sales*100

Margin of safety is define as the sales over the break even sales.

Margin of Safety Ratio= Margin of Safety/Actual Sales*100

Profit ratio =Margin of Safety Ratio*P/V Ratio

=50%*20%

=10%.