P/V RATIO MANAGEMENT ACCOUNTING

PROFIT VOLUME RATIO (MANAGEMENT ACCOUNTING)

1. Uses of profit volume ratio PRESENTED BY Submitted to Shahana P ( Roll no. 37) Pawan Kumar Gupta, Anjana K ( Roll no. 12) Assistant Professor, Department of B.COM –II YEAR Commerce, MGGAC, Mahe

2. WHAT IS P. V. RATIO The profit volume (P. V) ratio is the measurement of the rate of change of profit due change in volume of sales . P. V ratio is the relationship percentage of contribution in terms of sales or turn over . It is also known as contribution to sale ratio. The concept of P. V. ratio helps in determining break- even- point, profit at any volume of sales, sales volume required toEarn a desired amount of profit . It’s the fundamental property is that if Per unit sales price and variable cost are constant theb P. V ratio will be constant at all levels of activities. P. V ratio plays very important part in the solution of problems sought to be delate with by the break-even analysis. It is very helpful in pricing policy , product analysis and profit planning.

3. APPLICATIONS OF PROFIT VOLUME RATIO Determination Of break-even point. (BEP =F. C/P. V ratio) Determination of contribution (contribution=sales *P. V. ratio) Determination of Marginal of safety (M. S=profit /P. V ratio) Determination of variable costs for any volume of sales. (v. c=sales(1- P. V ratio) Determination of profit or loss (profit=sales,*P. V. Ratio) – F. C.

4. FORMULAS OF P. V. RATIO P. V. Ratio= sales-variable cost /sales*100 P. V. Ratio = contribution/sales*100 P. V. Ratio =change in profit/change in sales *100 P. V. Ratio =change in contribution /change in sales *100 P. V. Ratio =profit/margin of safety *100 P. V. Ratio =fix cost/break even point

5. USES OF P. V. RATIO It helps in the determination Of break-even – Point [BEP=Fixed cost/P. V ratio] It helps in the determination Of sales to earn a desired amount of profit [Sales =Fixed cost +desired profit /P. V. Ratio ] It helps in determining the required selling price per unit [selling price per unit =variable cost/1-p/v ratio] It helps in determining the variable cost for any volume of sales [ Variable cost =1-p.v ratio It helps in determining Margin of safety [margin of safety =profit /P.v ratio]

6. EXAMPLES OF P. V. Ratio ? Company sale are RS. 1000000 @ rs 10 per unit . It’s fixed cost rs. 250000 and variable cost rs. 600000 . Calculate P. V ratio? sales-v.c=contribution (1000000-600000=rs. 400,000 ) P. V. Ratio =contribution/sales* 100 =400,000 /1000000 *100=40% P. V ratio =40%. ? Years. Contribution. Sales 2010. 150000. 300000 2011. 180000. 360000 [if Marginal of safety rs. 20000]

7. P. V ratio =change in contribution /change in sales *100 30000/60,000 *100 =50% P. V ratio =profit /margin of safety *100 =10000/20000,*100 =50%.

8. CONCLUSION A high Profit volume ratio is always desirable. Hence every firm must try to maintain high P. V ratio or to increase it. If profit volume is lower , it can be improved in the manners. Increase in the sales price Decreasing the variable cost change the sales mix Higher the P. V ratio more will be the Profit and lower the P. V ratio lesser will be the Profit .

9. THE PROFIT VOLUME GRAPH

10. THANK YOU