--%>

Introduction of the term P-V ratio

Give a brief introduction of the term P/V ratio and Contribution?

E

Expert

Verified

P/V Ratio (or Profit Volume Ratio) is the ratio of contribution to sales that points out the contribution earned with respect to one rupee of sales. It as well evaluates the rate of change of profit because of change in volume of sales. Its essential property is that if per unit sales price and variable cost are steady then P/V Ratio will be steady at all the levels of activities. A change is fixed cost does not influence P/V Ratio. It is evaluated as under:

(Contribution * 100) / Sales

(Change in profits * 100) / (Change in sales)

A high P/V Ratio points out that a small raise in sales without raise in fixed costs will result in higher profits. A low P/V ratio that points to low profitability can be developed by rising selling price, falling marginal costs or selling products having high P/V ratio.

Contribution is the differentiation between variable cost and sales revenue (or also known as variable cost). Variable cost is the significant cost in deciding profitability as fixed costs are deny by marginal costing.

It can be stated in two ways:

- Sales Revenue – Variable Cost

- Fixed Cost + Profit

The condition generating higher contribution is treated as a profitable condition.

   Related Questions in Managerial Economics

  • Q : What are the reasons for adopting

    What are the reasons for adopting penetration price strategy?

  • Q : Market supply of specialized labor A

    A supply of specialized labor tends to shrink while: (1) the social status of that field rises. (2) an increase in income expectations happens. (3) employment stability increases and training costs decrease. (4) wages rise into a field using similar s

  • Q : Explain opinion of Stonier and Hague

    Illustrates the opinion of Stonier and Hague for explaining Demand in economics?

  • Q : Total wage payments by increase in wage

    Increasing the wage from $9 to $15 will cause Plastibristle’s total hourly wage payments to: (w) rise by about $900. (x) rise by about $1500. (y) fall by about $900. (z) fall by about $1500. <

  • Q : Define consumer psychology and pricing

    Define the consumer psychology and pricing and affecting elements.

  • Q : Occurrence of Occupational Crowding An

    An illustration of occupational crowding occurs while: (1) Morgan, Blake and Jackie share one small office and a fax machine at an investment firm. (2) Juanita, Rosa, and Maria find work only as hotel maids since, as Hispanic women, they are stereotyp

  • Q : Surplus payment from society to

    If a resource is in perfectly inelastic supply (like land), the resource price: (w) has no allocative function. (x) would rise only when resource demand falls. (y) is a surplus payment from society as an entire to resource owners. (z)

  • Q : Part of the payment in economic rent

    Economic rent shows part of the payment for the utilization of: (w) landowners’ labor and capital to keep their land. (x) landowners’ buildings and equipment. (y) resources for that supplies are less than perfectly elastic. (z) any piece o

  • Q : Competitive demand of employer A

    A competitive demand of employer for labor is: (1) derived from the demand that exists for the firm’s output. (2) inverted compared to regular demands. (3) shifted rightward by hikes in real wage rates. (4) positively sloped. (4) determined thro

  • Q : Define the going rate pricing briefly

    Define the going rate pricing briefly.