Variable Cost Ratio
Definition of 'Variable Cost Ratio'Variable costs expressed as a percentage of sales. The variable cost ratio compares costs, which fluctuate depending on production levels, to the revenues made on those products. This ratio relates the specific costs to the revenues they generate.May also be defined as "1 - contribution margin ratio". |
|
Investopedia explains 'Variable Cost Ratio'The variable cost ratio is useful in setting pricing policy so as to arrive at the optimum price for a product. The calculation can be done on a per-unit produced basis, or by totals over a time period as long as the numerator and denominator are used.For example, if variable costs per unit of a product are $55 and the product sells for $100, the variable cost ratio is 55%. The difference between the selling price and variable costs is known as contribution margin (CM); this amount is the contribution toward meeting fixed costs. The variable cost ratio can also be computed as (1 - CM ratio). |
Related Definitions
Articles Of Interest
-
Analyzing Operating Margins
Find out how to put this important component of equity analysis to work for you. -
Operating Leverage Captures Relationships
Find out how fixed and variable costs interact to shed new light on old companies. -
What are the risks of having both high operating leverage and high financial leverage?
In finance, the term leverage arises often. Both investors and companies employ leverage to generate greater returns on their assets. However, using leverage does not guarantee success, and the ... -
What Type Of Trader Are You?
There are different ways stock traders attempt to profit from market movements. Which of the strategies do you use? -
Mergers And Acquisitions: Understanding Takeovers
In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game. -
Interpreting A Company's IPO Prospectus Report
Learn to decipher the secret language of the IPO prospectus report - it can tell you a lot about a company's future. -
After A Big Recovery Rally, It's Up To Renew Blue For Best Buy
Investors have bought Best Buy's story, but this quarter shows that a lot of work remains to be done -
If You Don't Mind Volatility, Deere Could Still Do Alright
Though Deere's shares sold off after earnings, the business model is sound and rolling along. -
Agilent Isn't Making It Easy On Investors
Core operating performance at Agilent needs to improve -
Consumer Spending As A Market Indicator
What people buy and where they shop can provide valuable information about the economy.
Free Annual Reports