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Guide to what is Variable Cost Per Unit. Here we explain how to calculate it using its formula, with an example, advantages, & disadvantages.
Variable Cost Per Unit Formula. The average variable cost, or “variable cost per unit,” equals the total variable costs incurred by a company divided by the total output (i.e. the number of units produced).
Total Variable Cost = Total Quantity of Output x Variable Cost Per Unit of Output. The variable cost per unit will vary across profits.
Calculate variable cost per unit and total variable cost for a given company. Then, find data on the average variable cost for that company's industry. This can give you a standard of comparison by which to judge the first company.
The variable cost per unit is calculated by dividing the total variable costs of the business by the number of units. Variable Cost Per Unit Example. To illustrate, suppose a business has costs which are classified as shown below. Direct Labor 40,000 – variable. Utilities 22,000 – 80% variable. Materials 35,000 – variable.
Formula to Calculate Variable Cost Per Unit. To calculate variable cost per unit, we divide the total variable cost by the number of units. Example: Calculate the variable cost per unit of 5 coaches whose total variable cost is Sh. 129,000. Therefore, the variable cost per unit is Sh. 25,800.
To find variable cost per unit, we add the cost per unit in materials ($25) and direct labor costs ($25), and multiply it by our total quantity of output (how many chairs are produced for the order). 30 x ($25 + $25) = $1,500
To calculate your total variable costs, you multiply this per-unit cost by the total number of units produced over a given time. Additionally, the variable cost ratio can help you analyze how these costs compare to your total revenue. Variable vs. Fixed Costs.
In order to find the average variable cost (total variable cost per unit produced), you need to sum all the variable costs for a given period and divide by the total number of units made during that period. In other words, you need to divide the total variable cost by the total number of items made.
How to Calculate Variable Cost per Unit: Step-by-Step. Step 1: Identify Variable Costs. Begin by identifying all variable costs associated with production. This may involve analyzing raw material expenses, direct labor costs, and variable overheads. Step 2: Sum the Variable Costs. Once identified, sum up all variable costs.