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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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What is the variable cost ratio? The contribution margin ratio? How are the two ratios related?

To determine

Explain the terms variable cost ratio and contribution margin ratio and state the relation between them.

Explanation

Variable Cost Ratio and Contribution Margin Ratio:

Variable cost ratio refers to the amount of sales dollar used to cover the total variable cost. It is calculated by dividing the unit variable cost by price. The ratio varies according to the units of production and excludes the balance of fixed cost. The variable cost ratio is used to determine the profitability of the organization.

Contribution margin ratio refers to the balance of sales dollar that is left after total variable cost is recovered...

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