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Answer Posted / kasim
The Profit Volume (PV) Ratio is the ratio of Contribution
over Sales. It measures the Profitability of the firm and is
one of the important ratios for computing profitabilty. The
Contribution is the extra amount of sales over variable cost.
Contribution is also Fixed cost plus profit.
Profit = Sales - Variable Cost - Fixed Cost.
Thus Contribution is:
Profit + Fixed Cost = Sales - Variable Cost.
Therefore PV Ratio = (Contribution/Sales)X100. (This as a
percentage of sales)
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