What is the ‘Variable Cost Ratio’
The variable cost ratio is an expression of a company’s variable production costs as a percentage of sales, calculated as variable costs divided by total revenues. It compares costs that change with levels of production to the amount of revenues generated by production. This contrasts with fixed costs that remain constant regardless of production levels.
Explaining ‘Variable Cost Ratio’
Consideration of the variable cost ratio, which can alternately be calculated as 1 – contribution margin ratio, is one factor in determining profitability, since it indicates if a company is achieving, or maintaining, the desirable balance where revenues are rising faster than expenses.
Variable Costs, Fixed Expenses, Revenues, Contribution Margin and Profits
The variable cost ratio and its usefulness are easily understood once the basic concepts of variable costs, fixed expenses, and their relationship to revenues and general profitability is grasped.
Variable Cost Ratio FAQ
How do you find variable cost ratio?
What is the formula for total variable cost?
What is a variable cost example?
What is included in variable costs?
What are examples of fixed costs?
What are examples of fixed and variable costs in a fast food restaurant?
How do you calculate fixed and variable costs?
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- Financial and stock market variables as predictors of management buyouts – onlinelibrary.wiley.com [PDF]