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Variable cost ratio

Variable cost ratio: variable costs expressed as a percentage of sales revenue, equal to one minus the contribution margin ratio — used to move quickly between sales and cost figures.

ByHoang TruongUpdated

FrameworkCost-volume-profit (CVP) model

See it move

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A boutique sells scarves at €40 each, and the variable cost of buying and finishing each one is €14, giving a variable cost ratio of €14 divided by €40, or 35%. The same ratio holds at revenue level: selling 300 scarves generates €12,000 of sales and €4,200 of variable costs, and €4,200 divided by €12,000 is again 35%, leaving a 65% contribution margin ratio.

Where it fits
SubjectCost AccountingCoreTopicCost-Volume-Profit AnalysisCore

The formula

LaTeX
VCR=VCS=1CMRVCR = \frac{VC}{S} = 1 - CMR

Variables

Variable cost ratio (ratio)
Total variable costs ()
Sales revenue ()
Contribution margin ratio (ratio)

Gives variable costs as a share of sales revenue, and its complement is the contribution margin ratio used throughout CVP analysis.

Check yourself

PracticeCORE

A café sells specialty coffees for €5.00 each; the variable cost of ingredients and packaging is €2.00 per coffee. Last week the café sold 640 coffees for total sales of €3,200. What is the café's variable cost ratio?

Select an answer to check your understanding.
Variable cost ratio — Edlintics Glossary