P/V ratio can not be improved by reducing selling price. Comment?
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P/V ratio or Profit Volume ratio is the ratio of Contribution over Sales. It is an important indicator in measuring the profitability of a firm.The Contribution is the extra amount of Sales over Variable Cost.
If the selling price is reduced, the contribution would fall. Hence, the P/V ratio cannot be improved by reducing selling price.
If the selling price is reduced, the contribution would fall. Hence, the P/V ratio cannot be improved by reducing selling price.
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P/V ratio is Profit to Volume ratio and it it indicates the relationship between contribution and sales and is usually expressed in percentage. The ratio shows the amount of contribution per rupee of sales. The contribution Is the selling price per unit minus the variable cost per unit. So if we reduce the selling price the selling price per unit gets reduced and the contribution is reduced and hence the P/V ratio is reduced. Therefore we can't improve P/V ratio by reducing the selling price.
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