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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.
Imagine 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%
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