Question

What is the P/V Ratio? Describe its usefulness to management.​

Answer 1

Answer:

The Profit Volume (P/V) Ratio is the measurement of the rate of change of profit due to change in volume of sales.

Uses of P/V Ratio are:-

(i) It helps in the determination of Break-even-point.[BEP = Fixed cost ÷ P/V ratio]

(ii) It helps in the determination of profit at any volume of sales.

[Sales x P/V ratio = Contribution, Profit = Contribution – Fixed Cost]

(iii) It helps in the determination of sales to earn a desired amount of profit.

(iv) It helps in determining margin of safety.[Margin of safety = Profit ÷ P/V ratio]