Overall P/V Ratio of the company = 60% P/V Ratio - Contribution Sales - Variable Cost Sales Sales p> If selling price is assumed to be 100. Contribution = 60 Variable Cost = 100 - 60 = 40 Thus, when variable cost is 40, selling price = 100 100 When variable cost is 1 selling price will be = 40 When variable cost is 20, selling price will be = 100 x 20 = 50. 40 Export Market vs. Home Market A firm engaged in supplying goods in the home market and having surplus production capacity, may think of utilising it to meet export orders at a price lower than that prevailing in the home market. Such a decision is made only when the local sale is earning a profit i.e., when it fixed costs have already been recovered by the local sales. In such cases, if the export price is more than the marginal cost, it is advisable to enter the export market. Any reduction in the selling price in the local market to utilise the surplus capacity may adversely affect the normal local sales. However, dumping in the export market at a lower price even below marginal cost in order to capture future market, has no adverse effect on local sales. Illustration 7 Indo-US Company has a capacity to produce 5,000 articles but actually produced only 2,000 articles for home market at the following costs: Materials Wages Factory Overheads: 40.000 36,000 Variable 20,000 Administration overhead (Fixed) 18,000 Selling and Distribution overhead: Fixed 10,000 Variable 16,000 1.52,000 The home market can consume only 2.000 articles at a selling price of 80 per article. An additional order for the supply of 3,000 articles is received from a foreign customer at 65 per article. Should this order be accepted or not