From the following information about a firm, what will be the contribution to sales (c/s) ratio and the profit?
Sales = ₹ 100,000
Fixed Cost = ₹ 20,000
Break-even Point = ₹ 40,000

Correct option is B

Step 1: Calculate Contribution to Sales (C/S) Ratio

The Contribution to Sales (C/S) Ratio, also known as the Profit-Volume Ratio (P/V Ratio), is calculated using the formula:

where Contribution is given by:

Contribution = Sales−Variable Cost

Since we are not directly given the variable cost, we use the Break-even Point (BEP) formula:

Given:

• Fixed Cost (FC) = ₹20,000
• Break-even Sales = ₹40,000

Rearranging:

Step 2: Calculate Profit

Profit = Total Contribution−Fixed Cost

Total Contribution:

= C/S Ratio×Total Sales
= 50%×100,000
= 50,000

Profit = 50,000 − 20,000
Profit = 30,000

Information Booster:

• Contribution to Sales (C/S) Ratio (or P/V Ratio) helps in understanding the profitability of a product. A higher C/S ratio indicates that a greater proportion of sales contributes to covering fixed costs and generating profit.
• Break-even Sales is the point where the company makes neither a profit nor a loss. It is important for decision-making and cost management.
• Profit Calculation involves subtracting fixed costs from total contribution, which shows how much actual profit remains after covering all fixed expenses.