The profit volume ratio or P/V ratio is the ratio or percentage of contribution margin to sales. This ratio is also known as marginal income ratio, contribution to sales ratio or variable profit ratio. The profit volume ratio usually expressed in percentage is the rate at which profit increases with the increase in the volume.
The formula for profit volume ratio are :
P/V ratio
= (sales value – variable cost)/sales value
Or
= (1 – variable cost ratio)/sales ratio
Or
= (fixed cost + profit)/sales value
Or
= (change in profit/contribution)/change in sales
All these formulas in substance mean the same thing.
