If p. v is 20% then calculate the% of variable cost
Answers
Explanation:
Take your total cost of production and subtract your variable costs multiplied by the number of units you produced. This will give you your total fixed cost.
Answer:
Profit Volume (PV) Ratio is the ratio of Contribution to Sales. In other words, if we sell ₹1 worth of product, PV ratio indicates how much contribution is earned on such ₹1 of sale.
PV ratio is given by “Contribution ÷ Sales”
In your question PV ratio is 20% which means on selling ₹100 worth of product ₹20 will be earned as contribution.
However, the given SP is ₹150 per unit. Hence contribution works out to 150*20% = ₹30 per unit.
We know SP - Variable Cost = Contribution. Now we have SP as well as Contribution per unit, and we need to find out VC per unit.
Therefore, from the above formula,
VC = SP - Contribution
i.e. VC = 150–30 = ₹120 per unit
We can do this a lot faster if we understand that if PV ratio is 20%, it means that 20% of sales is Contribution and the rest 80% (100–20) of sales is Variable Cost.