An increase in variable costs .a.reduces contribution .b.increase margin of safety.c.increases the profit.d.increases p/v ratio .

The impact of an increase in variable costs on different financial aspects can be explained as follows:

a. Reduces Contribution: Variable costs are those costs that change directly with the level of output. When variable costs increase, it means that more costs are being incurred for each unit of output. This reduces the contribution margin, which is the selling price per unit minus the variable cost per unit. The contribution margin represents the portion of each sale that contributes to covering fixed costs and then to profit. So, if variable costs increase, the contribution margin decreases.

b. Decrease Margin of Safety: The margin of safety is the difference between actual or expected sales and sales at the break-even point. If variable costs increase, the break-even point (where total revenues equal total costs) also increases. This means that more units must be sold to break even, which reduces the margin of safety.

c. Reduces the Profit: As variable costs increase, the total cost of producing goods or services also increases. If the selling price remains the same, the increase in total cost will reduce the profit margin.

d. Increases P/V Ratio: The P/V ratio, or profit-volume ratio, is a measure of how profit changes with changes in volume. If variable costs increase and the selling price remains the same, the P/V ratio will increase. This is because the profit for each additional unit sold (the contribution margin) decreases, so more units must be sold to achieve the same level of profit.