The correct answer is $\boxed{\text{B) 20%}}$.
The profit volume ratio (PVR) is a measure of a company’s profitability. It is calculated by dividing the company’s profit by its sales. A PVR of 40% means that the company makes a profit of 40 cents for every dollar of sales.
If the company’s selling price decreases by 10%, then the company’s revenue will also decrease by 10%. However, the company’s costs will not decrease by 10%. This is because the company’s costs are usually fixed, or do not change much in the short term.
Therefore, the company’s profit will decrease by more than 10%. To offset the decrease in profit, the company must increase its sales by more than 10%.
The amount by which the company must increase its sales can be calculated using the following formula:
$\text{Required sales increase} = \frac{100 – \text{PVR}}{100} \times \text{Decrease in selling price}$
In this case, the required sales increase is:
$\text{Required sales increase} = \frac{100 – 40}{100} \times 10 = 20\%$
Therefore, the company must increase its sales by 20% to offset the decrease in selling price.
Option A is incorrect because it is the amount of the decrease in selling price. Option C is incorrect because it is the amount of the decrease in profit. Option D is incorrect because it is the PVR.