Asked by Emily Jackson on Jul 14, 2024
Verified
Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio.
Variable Costs
Costs that change in proportion to the level of production or activity, such as materials and labor.
Sales
The transactions involving the exchange of goods or services for money.
Contribution Margin Ratio
A financial metric that measures how much of a company's revenue is left over after variable costs to cover fixed costs and generate profit.
- Determine and expound upon the contribution margin and its association with fixed expenses and earnings from operations.
Verified Answer
BK
Brenda KizerJul 21, 2024
Final Answer :
True
Explanation :
The contribution margin ratio is calculated as (Sales - Variable Costs) / Sales, which represents the percentage of sales that contributes to covering fixed costs and generating profit. Therefore, variable costs as a percentage of sales would be 100% minus the contribution margin ratio, as this ratio essentially represents the portion of sales not consumed by variable costs.
Learning Objectives
- Determine and expound upon the contribution margin and its association with fixed expenses and earnings from operations.