[amp_mcq option1=”10%” option2=”20%” option3=”25%” option4=”40%” correct=”option1″]<\/p>\n
The correct answer is $\\boxed{\\text{B) 20%}}$.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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%.<\/p>\n
The amount by which the company must increase its sales can be calculated using the following formula:<\/p>\n
$\\text{Required sales increase} = \\frac{100 – \\text{PVR}}{100} \\times \\text{Decrease in selling price}$<\/p>\n
In this case, the required sales increase is:<\/p>\n
$\\text{Required sales increase} = \\frac{100 – 40}{100} \\times 10 = 20\\%$<\/p>\n
Therefore, the company must increase its sales by 20% to offset the decrease in selling price.<\/p>\n
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.<\/p>\n","protected":false},"excerpt":{"rendered":"
[amp_mcq option1=”10%” option2=”20%” option3=”25%” option4=”40%” correct=”option1″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[952],"tags":[],"class_list":["post-52117","post","type-post","status-publish","format-standard","hentry","category-costing","no-featured-image-padding"],"yoast_head":"\n