Calculating Breakeven with variable cost/ratio

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July 25, 2021 at 2:23 am #629340
Ngon97
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I stumbled upon this question
A company is budgeting to sell 200,000 units of it’s product next year at a price of $15 per unit. Fixed costs will be $1,232,000 and the variable cost/sales ratio is 44%. What is the breakeven sales revenue and what is the margin of safety in the budge.
I know that to calculate BE Revenue I have to divide C/S ratio into Fixed Costs. But I don’t understand what variable cost/sales ratio is. I tried to find the C/S ratio from this but I am not getting the the whole concept.
July 25, 2021 at 8:13 am #629353
John Moffat
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The variable cost/sales ratio is the variable costs divided by the sales.
Given that the contribution is sales less variable costs, then the CS ratio must be 100% – 44% = 56%.
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