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Hello sir,
I came across a question in which the c/s ratio is given as 60%. The selling price and contribution were not given. Only the variable cost was givenThey solved it by stating that the variable cost/sales ratio=40% and used it to find the s.p in the question and so having the s.p and vc they got the contribution
Pls my confusion is on the rationale behind the variable cost/sales ratio which i have not heard of before
Thanks sir
Contribution = sales – variable costs
Therefore if the contribution is 60% of sales, then the variables costs must be 100 – 60 = 40% of sales.
The variable costs / sales ratio is not a standard ratio, which is why you have not heard of it. It is just application of simple arithmetic, and in exams is testing that you understand what the contribution is and the relevance of the CS ratio. The examiner deliberately sets questions to test understanding as opposed to simply learning formulae.
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