The correct answer is D. All of the above.
The profit-volume ratio (PVR) is a measure of a company’s profitability. It is calculated by dividing the company’s contribution margin by its sales revenue. The higher the PVR, the more profitable the company is.
There are three ways to improve a company’s PVR:
- Increase selling price. This will increase the company’s contribution margin, as the company will earn more money for each unit sold.
- Alter sales mixture. This means selling more of the company’s products with higher contribution margins and less of the products with lower contribution margins.
- Reduce variable cost. This will also increase the company’s contribution margin, as the company will spend less money on each unit sold.
All of these methods can be used to improve a company’s PVR. However, it is important to note that increasing selling price or reducing variable cost can also have a negative impact on the company’s sales volume. Therefore, it is important to carefully consider the impact of any changes on the company’s overall profitability.
Here is a more detailed explanation of each option:
- Increasing selling price: This will increase the company’s contribution margin, as the company will earn more money for each unit sold. However, it is important to note that increasing selling price can also have a negative impact on the company’s sales volume. If the company’s customers are not willing to pay a higher price, then the company’s sales revenue may decrease.
- Altering sales mixture: This means selling more of the company’s products with higher contribution margins and less of the products with lower contribution margins. This can be done by changing the company’s marketing strategy or by changing the products that the company offers.
- Reducing variable cost: This will also increase the company’s contribution margin, as the company will spend less money on each unit sold. However, it is important to note that reducing variable cost can also have a negative impact on the company’s quality or customer service. If the company reduces its variable cost by using lower quality materials or by providing poor customer service, then the company’s sales volume may decrease.
Therefore, it is important to carefully consider the impact of any changes on the company’s overall profitability.