Variable Cost Ratio Calculator

Calculate variable cost ratio from expenses and sales.

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What is Variable Cost Ratio?

Variable Cost Ratio (VCR) is the percentage of total sales that is consumed by variable costs.

Variable costs are expenses that change in direct proportion to the level of production or sales, such as materials and labor. The variable cost ratio is calculated by dividing total variable expenses by total net sales and multiplying by 100 to express it as a percentage.

Understanding the variable cost ratio helps businesses assess their cost structure and profitability. A lower variable cost ratio indicates that a larger portion of sales contributes to covering fixed costs and generating profit, while a higher ratio may signal potential inefficiencies or pricing issues.

The variable cost ratio is crucial for financial analysis, budgeting, and strategic planning, allowing companies to make informed decisions about pricing, production levels, and cost management.

Variable Cost Ratio Formula

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Total Variable Expenses} &= \mathrm{TVE}\newline\text{Total Net Sales} &= \mathrm{TNS}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Variable Cost Ratio} = \mathrm{R} \newline = \frac{\mathrm{TVE}}{\mathrm{TNS}} \times \mathrm{100{\%}}\end{gather*}

Variable Cost Ratio Calculation Examples

Example 1

A manufacturing company incurs total variable expenses of $50,000 while generating total net sales of $200,000.

Let's calculate the variable cost ratio for this company:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Total Variable Expenses}\space(\mathrm{TVE}) &= \mathrm{{\$}50{,}000}\newline\text{Total Net Sales}\space(\mathrm{TNS}) &= \mathrm{{\$}200{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Variable Cost Ratio}\space(\mathrm{R})\newline\begin{aligned}&= \frac{\mathrm{TVE}}{\mathrm{TNS}} \times \mathrm{100{\%}}\newline&= \frac{\mathrm{{\$}50{,}000}}{\mathrm{{\$}200{,}000}} \times \mathrm{100{\%}}\newline&= 0.25 \times \mathrm{100{\%}}\newline&= \mathrm{25{\%}}\end{aligned}\end{gather*}

This indicates that the variable cost ratio for the company is 25%, meaning that 25% of its sales are consumed by variable costs.

Example 2

A retail business has total variable expenses amounting to $30,000 against total net sales of $150,000.

Let's calculate the variable cost ratio for this retail business:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Total Variable Expenses}\space(\mathrm{TVE}) &= \mathrm{{\$}30{,}000}\newline\text{Total Net Sales}\space(\mathrm{TNS}) &= \mathrm{{\$}150{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Variable Cost Ratio}\space(\mathrm{R})\newline\begin{aligned}&= \frac{\mathrm{TVE}}{\mathrm{TNS}} \times \mathrm{100{\%}}\newline&= \frac{\mathrm{{\$}30{,}000}}{\mathrm{{\$}150{,}000}} \times \mathrm{100{\%}}\newline&= 0.2 \times \mathrm{100{\%}}\newline&= \mathrm{20{\%}}\end{aligned}\end{gather*}

This calculation shows that the variable cost ratio for the retail business is 20%, indicating the proportion of sales that goes towards variable costs.

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