Labor cost percentage is defined as which ratio?

Labor cost percentage is defined as which ratio?

• A. Total costs ÷ total sales
• B. Labor cost ÷ total costs
• C. Labor cost ÷ total sales
• D. Total sales ÷ labor cost

Answer: (C)

This question tests how we measure how much of revenue goes to labor. Labor cost percentage is calculated by dividing total labor costs (wages, payroll taxes, benefits, etc.) by total sales, and expressing the result as a percentage. This shows the share of revenue consumed by labor, which helps managers gauge staffing efficiency and profitability. So the best ratio is labor cost divided by total sales. It ties labor expenses directly to revenue and supports budgeting, pricing, and scheduling decisions. Other ratios mix in total costs or invert the relationship, which doesn’t isolate labor’s portion of revenue.

This question tests how we measure how much of revenue goes to labor. Labor cost percentage is calculated by dividing total labor costs (wages, payroll taxes, benefits, etc.) by total sales, and expressing the result as a percentage. This shows the share of revenue consumed by labor, which helps managers gauge staffing efficiency and profitability.

So the best ratio is labor cost divided by total sales. It ties labor expenses directly to revenue and supports budgeting, pricing, and scheduling decisions. Other ratios mix in total costs or invert the relationship, which doesn’t isolate labor’s portion of revenue.