When P/V ratio is high it indicates the high profit margin.From the above example, we may observe that the variable cost is the important cost in deciding profitability when fixed costs are constant.Here contribution is multiplied by 100 to arrive the percentage.P/V ratio =contribution x100/sales (*Contribution means the difference between sale price and variable cost).The PV ratio or P/V ratio is arrived by using following formula.
It is one of the important ratios for computing profitability as it indicates contribution earned with respect of sales. The Profit Volume (P/V) Ratio is the measurement of the rate of change of profit due to change in volume of sales.Thus, the variable cost is the important cost in deciding profitability when fixed costs are constant. Variable Cost: The Variable costs are those expense which changes with the level of sales. Therefore, these fixed expenses are called as fixed cost. This expense is fixed and does not change proportionately to sales.
Let us study how the companies examine all these.įixed cost: The Company has to meet its overhead expenses, irrespective of the volume of production and the sales. profit volume ratio, breakeven point and margin of safety. There are three other important workings in the process viz. A company determines the selling price of its products after calculating of the fixed cost, variable cost involved in productions and sales of the items produced by it.
0 kommentar(er)
