If contribution is £40,000 and sales are £200,000, what is the P/V ratio?

If contribution is £40,000 and sales are £200,000, what is the P/V ratio?

• A. 20%
• B. 2%
• C. 200%
• D. 10%

Answer: (A)

The P/V ratio shows what portion of each sales pound turns into contribution (to cover fixed costs and profit). It’s calculated as contribution divided by sales. 40,000 / 200,000 = 0.20, i.e., 20%. So for every £1 of sales, 20p contributes to fixed costs and profit (the remaining 80p goes to variable costs). This ratio is also used to estimate how changes in sales affect contribution and break-even, for example break-even sales = fixed costs / P/V ratio. The other numbers don’t fit the data shown, since they’d imply a different contribution-to-sales relationship.

The P/V ratio shows what portion of each sales pound turns into contribution (to cover fixed costs and profit). It’s calculated as contribution divided by sales.

40,000 / 200,000 = 0.20, i.e., 20%.

So for every £1 of sales, 20p contributes to fixed costs and profit (the remaining 80p goes to variable costs). This ratio is also used to estimate how changes in sales affect contribution and break-even, for example break-even sales = fixed costs / P/V ratio. The other numbers don’t fit the data shown, since they’d imply a different contribution-to-sales relationship.