P/V Ratio (Profit Volume Ratio) is the ratio of contribution to sales which indicates the contribution earned with respect to one rupee of sales. It also measures the rate of change of profit due to change in volume of sales. Its fundamental property is that if per unit sales price and variable cost are constant then P/V Ratio will be constant at all the levels of activities. A change is fixed cost does not affect P/V Ratio. It is calculated as under:
(Contribution * 100) / Sales
(Change in profits * 100) / (Change in sales)
This ratio determines profitability of a line of product & also overall profitability of a number of products;
This ratio compares the profitability of different lines of products, sales, companies, factories etc.
This ratio calculates break-even sales, profit at different levels of output, turnover which may be required for a desired profit or to offset reduction in price or to meet increased expenditure.