To express the result as a percentage, simply multiply it by 100.įor example, if our pencil company earns $1,000 and the variable expenses for that period total $600, then the variable expenses are 60% of the sales. To calculate the variable expense ratio, simply divide the company’s total variable expenses by the company’s total net sales. Variable expense ratio expresses variable expenses as a proportion of a company’s sales.
RATIOS AND PRICE PER UNIT CALCULATOR HOW TO
How To Calculate the Variable Expense Ratio A company will pay more to its sales staff as sales rise and less as sales fall. Other variable expenses might include commissions for sales representatives or anyone else on staff who is paid based on productivity. The cost will go down if the factory reduces production. To return to the example of the pencil factory - the cost of wood and graphite will go up as the factory increases production because making more pencils requires more wood and graphite. The cost of materials is a variable expense. The expense rises as the company produces more and falls as the company produces less. Imagine a factory that produces pencils - the cost of renting the factory building will remain the same, month after month, no matter how many pencils the company actually produces.Ī variable expense, on the other hand, is pegged to a company’s productivity or sales. Costs like rent and administrative salaries are fixed costs, which remain the same no matter how much a business is producing. What is a Variable Expense?īusiness expenses can be classified as either fixed (invariable) or variable.Ī fixed expense does not change based on a business’s other activities. Keep reading to learn more about why this is such an important business metric. Intrigued? This article will explore how the variable expense ratio is calculated and where it’s used. This is a useful metric that can help businesses in matters like pricing and production scheduling. The variable expense ratio expresses a company’s variable expenses as a percentage of its net sales. Variable expense ratio - also called the variable cost ratio - is a means of understanding how variable costs impact a business’s net profits. The FinTalk Blog Strategy and trends in payments.Customer Stories See how we transform finance operations.Why Tipalti A modern, holistic, powerful payables solution that scales with your changing business needs.The Tipalti Platform Global, scalable, and fully automated.Global Partner Payments Scalable payment solutions for creator, ad tech, sharing and marketplaces economy.Purchase Order Management Control and visibility over corporate spend.Accounts Payable Automation End-to-end, invoice-based payments designed for growing companies.
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