--%>

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 : Illustrate signalling by example If

    If interviewing for a job like a bill collector for a loan shark, Bob mentions his degree into martial arts by the Hard Knox Reformatory, his summer internship along with BreakUrLegs, Inc., as well as his family links. Bob’s casual discussion of such credentials

  • Q : Charging the competitive price in the

    An apparent monopoly might charge the competitive price in the long run when: (w) exit is costly. (x) entry and exit are relatively costless. (y) this is not a natural monopoly. (z) this is not regulated.

    Q : Maximizes profits of firm in a

    Refer to below figure. What is the amount of profit when the firm generates Q2units: w) this is equal to the vertical distance c to g. x) this is equal to the vertical distance c to Q2. y)  this is equal to the vertical distance g to Q2

  • Q : Define the going rate pricing briefly

    Define the going rate pricing briefly.

  • Q : Purely competitive labor market The

    The individual household within a purely competitive labor market as: (w) has a perfectly elastic supply of labor at the market wage. (x) has a perfectly inelastic supply of labor at the market wage. (y) faces a perfectly elastic demand for its labor

  • Q : HW Hello, Would you please find a small

    Hello, Would you please find a small case study in managerial economics. please I don't want the typical solution because the prof have it. thanks

  • 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 : Supply of Labor to Competitive Firms

    For a firm hiring through a purely competitive labor market, in that case the supply of labor is: (w) greater than the MRC. (x) less than the MRC. (y) the same as the MRC. (z) vertical to parallel the wage rate.

    Q : Government license in operating

    Gilligan is hiring new workers to help run his Island Getaway resort. Gilligan makes a decision that he will not hire a new worker unless they have been properly trained and certified into wilderness survival and have a license by the government to operate watercraft.

  • Q : Minimum supply to specified amounts of

    If the owner of a resource is paid in excess of the minimum needed to supply specified amounts of the resource, in that case the owner is the beneficiary of: (1) economic rents. (2) wage premiums. (3) excess profits. (4) surplus values. (5) capitaliza