What is Variable Cost?
Variable cost is the expenses that change with the decrease and increase of the production output of a company. These are the costs that differ with the volume of the output produces. Most of the basic variable costs are:
- Raw material
- Transportation fee, commission
- Utility bills
How to Calculate Variable Cost?
The formula used to calculate the variable cost:
Total Variable Cost = Total Quantity of Output x Variable Cost Per Unit of Output
Also Read: What is the Average Fixed Cost?
Where it is used mostly?
In a business, variable cost is mostly used and is an integral part while analysing company’s break-even. The break-even analysis is applied to scan the revenue or the unit that has to sold to cover the total cost.
The formula to determine Break-even:
Break-even point in units = Fixed costs / (Sales price per unit – Variable cost per unit)
For any successful investors, variable costs are essential to determine the percentage of the fixed price and forecast how the company will reciprocate under different operating condition.
The above mentioned is the concept, that is elucidated in detail about ‘How to calculate the total variable cost?’ for the Commerce students. To know more, stay tuned to BYJU’S.