Cost and Management AccountingMCQQuestion 5472 of 251
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11. PS Limited is facing downfall in its demand. Marketing team has suggested to reduce the selling price by 5% to compete in the market. Variable cost is 76% of the current selling price. You are required to find out the PN Ratio after reducing the price by 5%

Options

A20%
B24%
C25.26%
D19%
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Correct Answer

Option A20%

All Options:

  • A20%
  • B24%
  • C25.26%
  • D19%

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Detailed Solution & Explanation

The Profit Volume (P/V) Ratio is calculated as:
P/V Ratio=ContributionSales×100%\text{P/V Ratio} = \frac{\text{Contribution}}{\text{Sales}} \times 100\%
Where:
Contribution=Selling PriceVariable Cost\text{Contribution} = \text{Selling Price} - \text{Variable Cost}
After reducing the selling price by 5%, the revised P/V ratio is 20%.
Hence, **Option A** is the correct answer.

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