--%>

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 : Forecasting demand what are the

    what are the criteria for good forecasting

  • Q : Wage rate by hiring labor by price taker

    A firm which is a price taker in the labor market will hire labor to the point where the wage rate is equals labor’s: (w) average output. (x) marginal revenue product. (y) average revenue product. (z) marginal physical product.<

  • Q : Income effect by personal supply of

    A personal supply of labor is exemplified by an income effect which dominates the substitution effect if: (w) Trina retires to a beach condo after working for the city for 42 years. (x) members of a rock band give up touring for a yea

  • Q : Illustrations of investments in human

    Illustrations of investments in human capital would comprise: (1) freeing slaves at the conclusion of the Civil War. (2) betting on the outcome of a professional wrestling match. (3) need people to pass a test on the U.S. Constitution before permittin

  • Q : Spencer and Sieglemans definition of

    What is Spencer and Siegleman’s definition of Managerial economics?

  • Q : Demad elacticty demand function is: QY

    demand function is: QY = -8,000 - 5,000PY + 192A + 120I + 2,000PX (6,000) (1,000) (120) (80) (800) R2 = 91% Here QY is quantity (measured in units) of Product Y demanded in the current period, A is hundreds of dollars of advertising ($00), I is thousands of dollars of disposable income per ca

  • Q : Explain the Exceptional Demand Curve

    Explain the Exceptional Demand Curve.

  • Q : Economic Efficiency to make one person

    When an economic alteration makes one person better off whereas no one else is affected, then this is: (w) efficient to make the change. (x) traumatic to make the change. (y) neither good nor bad for society. (z) strictly a positive value judgment to

  • Q : Illustrates the barometric pricing

    Illustrates the barometric pricing briefly?

  • Q : Illustrates the major objectives of

    Illustrates the major objectives of demand analysis?