Course Content
Accounting Principles and Standards, Preparation of Financial Statements
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Accounting Concepts and Principles: Theoretical Framework
Accounting Standards : IFRS, IAS & GAAP
Responsibilities of IASB
Indian Accounting Standards (Ind AS)
Types of Account
Types of Expenditure
Financial Statement Analysis: Ratio Analysis, Funds Flow and Cash Flow Analysis, DuPont Analysis
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Financial Statements List
Important Terms
Ratio Analysis
Funds Flow Analysis
Flow of Funds
Cash Flow Analysis
Ind AS 7: Cash Flow Statement
DuPont Analysis
Preparation of Cost Sheet, Marginal Costing, Cost-Volume Profit Analysis
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Important Principles in Cost Accounting
Implicit Cost & Explicit Cost; Accounting Profit & Economic Profit
Law of Diminishing Returns
Economic Theory of Production
Production Theory in Micro Economics
Special Types of Costs
Cost Theory in Economics
Short-Run Costs in Perfect Competition
Marginal Revenue & Profit Maximizing Rule
Shutdown Rule in Short Run
Short Run in Monopoly
Preparation of Cost Sheet
Fixed Costs (F.C.) , Variables Costs ( V.C.) and Contribution Margin
P/V ratio ( Profit / Volume ratio)
Break Even Point (B.E.P.) & Margin of Safety (M.O.S.) & Law of Diminishing Return
Cost-Volume Profit Analysis
Standard Costing & Variance Analysis
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Inventory Valuation Method
Standard Costing
Material Variance
Volume Variance
Overhead Absorption Rate
Overhead Expenditure Variance
Variable Overhead Cost Variance
Overhead Spending Variance
Labour Efficiency Variance
Unit IV: Managerial Accounting

🔷 Introduction

In managerial decision-making, understanding how sales revenue interacts with cost behavior is crucial. One key metric that helps managers assess profitability and make informed decisions is the P/V Ratio. This ratio provides insight into the relationship between sales, variable costs, and contribution, ultimately influencing a firm’s profitability.

🔷 Definition of P/V Ratio

The Profit/Volume Ratio (P/V Ratio) is defined as the ratio of contribution to sales. It indicates the contribution earned per rupee of sales. The contribution is the portion of sales revenue that is not consumed by variable costs and therefore contributes to the coverage of fixed costs and profit.

The P/V Ratio (Profit/Volume Ratio) measures how much contribution is earned per rupee of sales. When given profit figures and sales figures for two periods, the P/V ratio can be calculated using the formula:

P/V Ratio
= ( Change in Profit / Change in Sales ) × 100
= ( Δ Profit / Δ Sales ) x 100

🔹 Components:

  • Sales: Total revenue earned by the business.

  • Variable Cost: Costs that vary directly with the level of output or sales.

  • Contribution: The amount remaining from sales after covering variable costs; it contributes toward covering fixed costs and generating profit.

🔹 Interpretation:

  • A higher P/V ratio indicates better profitability, as a greater portion of each sales rupee contributes to fixed costs and profits.

  • A low P/V ratio suggests high variable costs and weaker profit generation per unit of sales.

🔹 Importance of P/V Ratio:

  1. Profit Planning: Helps in estimating the level of sales required to achieve a desired profit.

  2. Break-even Analysis: A higher P/V ratio implies a lower break-even point.

  3. Decision Making: Used in making decisions about product pricing, mix, and cost control.

  4. Margin of Safety Analysis: Aids in assessing how much sales can drop before a business reaches break-even.

🔹 Example:

Let’s say a company has:

  • Sales = ₹5,00,000

  • Variable Costs = ₹3,00,000

Then,

This means 40% of the sales revenue contributes toward covering fixed costs and profit.

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