CA INTERMEDIATE: COSTING & FM · MARGINAL COSTING

P/V ratio (contribution ÷ sales)

P/V ratio = Contribution ÷ Sales × 100, where Contribution = Sales − Variable cost. With two periods: Change in profit ÷ Change in sales × 100.

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Worked examples

Example 1 · level 1

Nair Spices Pvt Ltd: sales ₹6,50,000, variable cost ₹3,25,000, fixed cost ₹1,63,000. Find the P/V ratio (%).

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Contribution = ₹6,50,000 − ₹3,25,000 = ₹3,25,000.
P/V = ₹3,25,000 ÷ ₹6,50,000 × 100 = 50%.

Answer: 50 %

Example 2 · level 2

Sharma Industries Ltd — Year 1: sales ₹3,80,000, profit ₹82,000. Year 2: sales ₹6,30,000, profit ₹1,82,000. Fixed costs and selling price did not change. Find the P/V ratio (%).

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ΔProfit = ₹1,00,000, ΔSales = ₹2,50,000.
P/V = 1,00,000 ÷ 2,50,000 × 100 = 40%.

Answer: 40 %

Example 3 · level 3

Product: steel chairs made by Nair Spices Pvt Ltd. Selling price ₹263 per unit, variable cost ₹105 per unit. Find the P/V ratio (%), two decimals.

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Contribution per unit = 263 − 105 = ₹158.
P/V = 158 ÷ 263 × 100 = 60.08%.

Answer: 60.076 %