The profit/volume (P/V) ratio expresses the relationship between contribution and sales. It is calculated as contribution divided by sales or sales minus variable costs divided by sales. The P/V ratio is important for analyzing the profitability of a business, as a higher ratio means more profit and a lower ratio means less profit. The ratio can be increased by raising prices, lowering variable costs, or selling more profitable products. The P/V ratio is also useful for calculating the break-even point, profit at a given sales volume, sales needed for a target profit, and sales required to maintain profits with a price reduction.

1. p/v ratio Submitted to L.Rongmai Asst prof Dba-Sms Submitted by Sujoykumarpaul Roll no -03 1

2. The profit /volume ratio ,which is also called the contribution ratio or marginal ratio express the relation of contribution to sales and can be expressed as under P/v ratio =𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛𝑠𝑎𝑙𝑒𝑠 March 3, 2011 2

3. Since Contribution = Sales – variable cost = variable + Profit, P/V ratio can also be expressed as: P/V Ratio=𝑺𝒂𝒍𝒆𝒔 −𝑽𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝒄𝒐𝒔𝒕𝑺𝒂𝒍𝒆𝒔 March 3, 2011 3

4. The P/v Ratio ,which establishes the relationship between contribution and sales is of vital importance for studying the profitability of operations of a business .It reveals the effect on profit in the volume . Higher the P/V Ratio, more will be the profit and lower the P/V Ratio lesser will be the profit. March 3, 2011 4

5. The ratio can be increased by increasing the contribution ….. Increasing the selling price Reducing the variable or marginal cost Changing the sales mixture and selling more profitable products for which the P/V Ratio is higher. March 3, 2011 5

6. The concept of P/V Ratio is also useful to calculate the break even point , the profit at a given volume of sales ,the sales volume required to earn a given profit and the volume of sales required to maintain the present profits if the selling price is reduced by a specific percentage. March 3, 2011 6

7. Thank you March 3, 2011 7