{"id":3522,"date":"2020-02-22T13:17:52","date_gmt":"2020-02-22T13:17:52","guid":{"rendered":"https:\/\/commerceiets.com\/?p=3522"},"modified":"2020-02-22T13:17:52","modified_gmt":"2020-02-22T13:17:52","slug":"profit-volume-ratio","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/profit-volume-ratio\/","title":{"rendered":"PROFIT VOLUME RATIO"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/profit-volume-ratio\/#PROFIT_VOLUME_RATIO\" title=\"PROFIT VOLUME RATIO\">PROFIT VOLUME RATIO<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/profit-volume-ratio\/#FEATURES_OF_PROFIT_VOLUME_RATIO_PV_RATIO\" title=\"FEATURES OF PROFIT VOLUME RATIO (P\/V RATIO)\">FEATURES OF PROFIT VOLUME RATIO (P\/V RATIO)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/profit-volume-ratio\/#CALCULATION\" title=\"CALCULATION\">CALCULATION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/profit-volume-ratio\/#WAYS_TO_IMPROVE_PV_RATIO\" title=\"WAYS TO IMPROVE PV RATIO\">WAYS TO IMPROVE PV RATIO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/profit-volume-ratio\/#USES_OF_PROFIT-VOLUME_RATIO\" title=\"USES OF PROFIT-VOLUME RATIO\">USES OF PROFIT-VOLUME RATIO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/profit-volume-ratio\/#CONCLUSION\" title=\"CONCLUSION\">CONCLUSION<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"PROFIT_VOLUME_RATIO\"><\/span><strong>PROFIT VOLUME RATIO<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Profit Volume Ratio shows percentage of <a rel=\"noreferrer noopener\" aria-label=\"contribution (opens in a new tab)\" href=\"https:\/\/commerceiets.com\/contribution\/\" target=\"_blank\">contribution<\/a> to the sales value i.e. margin as percentage of sales out of it; the fixed cost is met and there is a profit. It is one of the tools used in marginal costing.<\/p>\n\n\n\n<p>The Profit Volume (P\/V) Ratio is the measurement of the rate of change of profit due to change in volume of sales. It is one of the important ratios for computing profitability as it indicates contribution earned with respect of sales. <\/p>\n\n\n\n<p><strong>Contribution = Sales Value \u00d7 P\/V Ratio<\/strong><\/p>\n\n\n\n<p>P\/V ratio is a relative ratio. It cannot be adopted independently.\nIf it is studied in an isolated way, it will not give much information. As\nfixed costs are not relevant in the calculation of P\/V ratio, erroneous\nconclusions may be arrived.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"FEATURES_OF_PROFIT_VOLUME_RATIO_PV_RATIO\"><\/span><strong>FEATURES OF PROFIT VOLUME RATIO (P\/V RATIO)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>\u2022 It is the ratio of contribution to sales.<\/p>\n\n\n\n<p>\u2022 This ratio is usually expressed in percentage.<\/p>\n\n\n\n<p>\u2022 The higher the PV Ratio, the better it is.<\/p>\n\n\n\n<p>\u2022 It indicates the effect on profit for a given change in\nthe sales.<\/p>\n\n\n\n<p>\u2022 It measures the profitability of each product, process,\noperation etc.<\/p>\n\n\n\n<p>\u2022 It facilitates managerial decision making.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"CALCULATION\"><\/span><strong>CALCULATION<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The Profit Volume Ratio can be calculated as follows:<\/p>\n\n\n\n<ul><li><strong>PV Ratio\n= (Contribution\/ Sales) &nbsp;x 100<\/strong><\/li><li><strong>PV Ratio\n= (Changes in Profit\/ Changes in Sales) x 100<\/strong><\/li><li><strong>PV Ratio\n= 100 &#8211; Variable Cost Ratio<\/strong><\/li><\/ul>\n\n\n\n<p>Based on the same the following formulas can be derived:<\/p>\n\n\n\n<ul><li><strong>Total\nSales = Contribution \/ PV Ratio<\/strong><\/li><li><strong>Desired\nSales (in units) = Fixed Cost + Desired Profit \/ Contribution per unit<\/strong><\/li><li><strong>Desired\nsales (in Rs.) = Fixed Cost + Desired Profit\/ PV Ratio<\/strong><\/li><\/ul>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"WAYS_TO_IMPROVE_PV_RATIO\"><\/span><strong>WAYS TO IMPROVE PV RATIO<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>P\/V Ratio can be improved by:<\/p>\n\n\n\n<ul><li>By reducing variable cost, or<\/li><li>By increasing the selling price, or<\/li><li>By improving Sales mix<\/li><li>Reducing direct and variable costs by\neffectively utilizing men, machines and materials.<\/li><li>Switching the production to more profitable\nproducts showing a higher P\/V ratio.<\/li><\/ul>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"USES_OF_PROFIT-VOLUME_RATIO\"><\/span><strong>USES OF PROFIT-VOLUME RATIO<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>P\/V ratio is one of the most important ratios to watch in\nbusiness. It is an indicator of the rate at which profit is being earned. A\nhigh Profit volume ratio indicates high profitability and a low ratio indicates\nlow profitability in the business. The profitability of different sections of\nthe business, such as sales areas, classes of customers, product lines, methods\nof production, etc., may also be compared with the help of profit-volume ratio.\nThe PV ratio is also used in making the following type of calculations:<\/p>\n\n\n\n<ul><li>Calculation of break-even point.<\/li><li>Calculation of profit at a given level of sales.<\/li><li>Calculation of the volume of sales required to\nearn a given profit.<\/li><li>Calculation of profit when margin of safety is\ngiven<\/li><li>Calculation of the volume of sales required to\nmaintain the present level of profit if selling price is reduced.<\/li><li>To determine the variable cost for any volume of\nsales,<\/li><li>To fix the selling prices,<\/li><li>To locate the break-even point and margin of\nsafety,<\/li><\/ul>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"CONCLUSION\"><\/span><strong>CONCLUSION<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>As P\/V ratio indicates the rate of profitability; any\nimprovement in this ratio without increase in fixed costs, would result in\nhigher profits. As a note of caution, erroneous conclusions may be drawn by\nmere reference to P\/V ratio and, therefore, this ratio should not be used in\nisolation.<\/p>\n\n\n\n<p>P\/V ratio is the function of sales and variable costs. Thus it can be improved by widening the gap between sales and variable cost. <\/p>\n\n\n\n<p><strong>JOIN THE CHANNEL ON TELEGRAM<\/strong><\/p>\n\n\n\n<p><a href=\"https:\/\/t.me\/commerceiets\" target=\"_blank\">https:\/\/t.me\/commerceiets<\/a><\/p>\n\n\n\n<p><strong>CONNECT ON LINKEDIN<\/strong><\/p>\n\n\n\n<p><a href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noopener\">https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/<\/a><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/cost-accounting\/\">Cost Accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-cost-accounting-pdf\/\">Scope of cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/elements-of-cost\/\">Elements of cost<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/types-of-cost\/\">Types of cost<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/material-control-in-cost-accounting-pdf\/\">Material control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perpetual-inventory-system\/\">Perpetual inventory system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/pricing-of-materials\/\">Pricing of materials<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/bin-card\/\">Bin Card<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/store-ledger\/\">Stores Ledger<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/incentive-plans\/\">Incentive plans<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/overhead\/\">Overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-treatment-of-idle-time\/\">Idle time<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/system-of-wage-payment-in-cost-accounting\/\">System of wage payment in cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-time-rate-system-and-piece-rate-system\/\">Time rate vs piece rate wage system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-centre\/\">Cost Center<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/labor-turnover\/\">Labour Turnover<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Difference between management accounting and cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/allocation-and-apportionment-of-overheads\/\">Allocation and apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-allocation-and-apportionment-of-overheads\/\">Allocation vs Apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/absorption-of-overheads\/\">Absorption of overheads<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/over-absorption-and-under-absorption-of-overheads\/\">Over absorption and under absorption of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/activity-based-costing\/\">Activity based costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-traditional-costing-and-activity-based-costing\/\">Traditional costing vs ABC system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/reconciliation-of-accounts\/\">Reconciliation of accounts<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/unit-costing\/\">Unit costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-format\/\">Cost sheet format<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-vs-production-account\/\">Cost sheet vs production sheet<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/job-costing\/\">Job costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/batch-costing\/\">Batch Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-batch-costing\/\">job costing vs batch costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/contract-costing\/\">Contract costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-contract-costing\/\">Job Costing vs Contract costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/process-costing\/\">Process Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-costing-vs-job-costing\/\">Process costing vs job costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/joint-products\/\">Joint products<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/by-products\/\">By Product&nbsp;<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/equivalent-production\/\">Equivalent production<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/marginal-costing\/\">Marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/applications-of-marginal-costing\/\">Application of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-volume-profit-analysis\/\">Cost volume profit analysis<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/tools-and-techniques-of-marginal-costing\/\">Tools and techniques of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budget\/\">Budget<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/break-even-point\/\">Break even point<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-of-budgetary-control\/\">Process of budgetary control<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explain-the-advantages-and-limitations-of-budgetary-control\/\">Advantages and limitations of budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budgetary-control\/\">Budgetary Control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/zero-base-budgeting\/\">Zero base budgeting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/standard-costing\/\">Standard Costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/variance-analysis\/\">Variance Analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-standard-costing-and-budgetary-control\/\">Standard costing vs budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Management accounting vs cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-financial-accounting-management-accounting-and-cost-accounting\/\">Cost accounting vs financial accounting<\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"581\" height=\"176\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2022\/07\/Profit-volume-ratio.png\" alt=\"profit volume ratio\" class=\"wp-image-5760\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2022\/07\/Profit-volume-ratio.png 581w, https:\/\/commerceiets.com\/wp-content\/uploads\/2022\/07\/Profit-volume-ratio-300x91.png 300w\" sizes=\"(max-width: 581px) 100vw, 581px\" \/><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>PROFIT VOLUME RATIO The Profit Volume Ratio shows percentage of contribution to the sales value i.e. margin as percentage of sales out of it; the fixed cost is met and there is a profit. It is one of the tools used in marginal costing. The Profit Volume (P\/V) Ratio is the measurement of the rate&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/profit-volume-ratio\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;PROFIT VOLUME RATIO&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":3523,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[187],"tags":[],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3522"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=3522"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3522\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/3523"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=3522"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=3522"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=3522"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}