P/v ratioo concept

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Rattan Yadav (Querist)
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06 August 2011 contribution/sales*100 , Why we take contribution as numerator for computing profit volume ratio?? why cannot we take profit directly (as contribution is fixed cost plus profit).Please tell is this a common practice or some solid reason is behind making this concept

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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06 August 2011 To arrive at BEV (Break Even Point)

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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06 August 2011 As a concept of marginal costing, only variable cost relevant to the costing, fixed cost is not relevant to arrive the profit, it can be absorbed with the minimum fixed quantity of sales, which is called Break even point, at the point of BEP, your sale will give no profit/no loss situation. means the sales only consist of variable cost,fixed cost. after this point what ever sale will be profit only to the extent of deducting variable cost. so contribution taken as fixed cost + profit and pv ratio arrived based on that

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