ACCA Applied Skills · Performance Management · Cost-volume-profit analysis (CVP)
A profit-volume chart for a single product shows a loss of $90,000 at zero sales and a break-even point at sales revenue of $300,000. What is the product's contribution to sales ratio?
The contribution to sales ratio is 30%, found by dividing fixed costs of $90,000 (the loss at zero sales) by break-even revenue of $300,000. At that revenue contribution exactly covers fixed costs.
- A30%Correct
- B70%
- C33.3%
- D90%
Explanation
Fixed costs equal the loss at zero sales, $90,000. Break-even revenue = fixed costs / C/S ratio, so C/S ratio = 90,000 / 300,000 = 30%. Check: 30% of 300,000 = 90,000, giving zero profit. 70% would be the variable cost ratio.
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