PV ratio when contribution per unit is 7 and selling price per unit is 10 is

PV ratio when contribution per unit is 7 and selling price per unit is 10 is

• A. 0.70
• B. 0.30
• C. 1.00
• D. 7.00

Answer: (A)

PV ratio, or contribution margin ratio, shows what portion of each sales unit remains after variable costs to cover fixed costs and profit. It is found by dividing the contribution per unit by the selling price per unit (or, in total terms, contribution divided by sales). Here, the contribution per unit is 7 and the selling price per unit is 10, so the PV ratio = 7/10 = 0.70, i.e., 70%. This means 70% of each unit’s selling price goes towards fixed costs and profit.

PV ratio, or contribution margin ratio, shows what portion of each sales unit remains after variable costs to cover fixed costs and profit. It is found by dividing the contribution per unit by the selling price per unit (or, in total terms, contribution divided by sales). Here, the contribution per unit is 7 and the selling price per unit is 10, so the PV ratio = 7/10 = 0.70, i.e., 70%. This means 70% of each unit’s selling price goes towards fixed costs and profit.