Question

Pauley Company provides home health care. Pauley charges $35/hour for professional care. Variable costs are $21/hour and fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of home health care.

What is the variable cost ratio?
a. 40%
b. 33%
c. 67%
d. 60%
e. 50%

Answer 1

Answer:

the variable cost ratio is 60 % (option d)

Explanation:

The variable cost ratio (VCR) represents the ratio of variable costs to sales. Therefore

VCR = (total variable costs)/(total sales)

since

total variable costs = variable costs * services provided = $21/hour * 12000 hours/year = $252000 /year

total sales = price of service * services provided = $35/hour * 12000 hours/year = $420000 /year

thus

VCR = ($252000 /year) / ($420000 /year) = 0.6 = 60 %