Dear Sir,
In test question 1 it is given C/S ratio is 30% and in answers you calculated Selling Price by dividing variable cost by 70% (I guess which is 100% - 30%) , so can you explain us how u arrive at this step , I mean what have you done to the formula "total contribution = C/S ration X Sales revenue" to reach "S.P = V.C / (100% - C/S ratio) "
Thank you.
CVP Analysis
11y ago#1Imagine the sales were 100.
Then contribution would be 30.
Contribution = sales - variable costs, so it means the variable costs would be 100 - 30 = 70.
So for every 70 of variable costs, the sales are 100. i.e. variable costs are 70% of sales.
So sales = variable costs / 70%
Got it ,
Thanks a lot Sir.
11y ago#3You are welcome :-)