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