The correct answer is D. All of these.
The profit-volume ratio (PVR) is a measure of a company’s profitability. It is calculated by dividing a company’s contribution margin by its sales revenue. The PVR can be used to determine a company’s break-even point, which is the level of sales at which a company’s revenue equals its costs. The PVR can also be used to determine the level of sales required to earn a desired profit.
The PVR can be used to decide the most profitable sales mix by comparing the PVRs of different products. The product with the highest PVR will be the most profitable to sell.
Here is a more detailed explanation of each option:
- To compute the variable cost for any volume of sales.
The PVR can be used to compute the variable cost for any volume of sales by multiplying the PVR by the sales revenue. For example, if a company has a PVR of 0.5 and sales revenue of $100,000, the variable cost would be $50,000.
- To determine break-even point and the level of output required to earn a desired profit.
The PVR can be used to determine the break-even point by dividing the fixed costs by the PVR. For example, if a company has fixed costs of $100,000 and a PVR of 0.5, the break-even point would be $200,000.
The PVR can also be used to determine the level of sales required to earn a desired profit by multiplying the desired profit by the PVR. For example, if a company wants to earn a profit of $50,000 and has a PVR of 0.5, the sales revenue required would be $100,000.
- To decide most profitable sales mix.
The PVR can be used to decide the most profitable sales mix by comparing the PVRs of different products. The product with the highest PVR will be the most profitable to sell.
For example, let’s say a company sells three products: Product A, Product B, and Product C. The PVRs for these products are 0.6, 0.4, and 0.3, respectively. This means that for every $100 in sales of Product A, the company makes a profit of $60. For every $100 in sales of Product B, the company makes a profit of $40. And for every $100 in sales of Product C, the company makes a profit of $30.
In this case, the company should focus on selling Product A, since it has the highest PVR. However, it’s important to note that the PVR is just one factor to consider when making sales decisions. Other factors, such as the demand for each product, the cost of production, and the company’s overall strategy, should also be considered.