Q:
# What Is the Formula for Finding the Variable Cost Ratio?

There are two formulas for calculating variable cost ratio. The first formula is: TVC ÷ TS = VCR. TVC is total variable costs, TS is total sales and VCR is variable cost ratio. Here's an example with numbers: $2000 ÷ $10000 = 0.2. The variable cost ratio is 20 percent.

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The second formula uses the difference between sales and variable cost, known as the contribution margin, and sometimes also called marginal income. First the CM has to be calculated: TS - TVC = CM and CM÷TS = CMR. Then the variable costs ratio is calculated: 1 - CMR = VCR. Here is an example with numbers: $10000 - $2000 = $8000. Then the CM ratio is calculated: 8000 ÷ 10000 = 0.8. Finally the variable cost ratio is presented: 1 - 0.8 = 0.2. The result is the same in both cases. The variable cost ratio is 20 percent.

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