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The level of variable cost is influenced by many factors, such as fixed cost, duration of project, uncertainty and discount rate. An analytical formula of variable cost as a function of these factors has been derived. It can be used to assess how different factors impact variable cost and total return in an investment. [5]
Notice that w (average unit production cost) includes the fixed and variable costs. The square brackets contain the cost of goods sold, wq not cost of good made wx where x = cost of good sold. To show cost of good sold, the opening and closing finished goods stocks need to be included The profit model would then be:
In economics, average variable cost (AVC) is a firm's variable costs (VC; labour, electricity, etc.) divided by the quantity of output produced (Q): = Average variable cost plus average fixed cost equals average total cost (ATC): A V C + A F C = A T C . {\displaystyle AVC+AFC=ATC.}
Variable costing is a managerial accounting cost concept. Under this method, manufacturing overhead is incurred in the period that a product is produced. This addresses the issue of absorption costing that allows income to rise as production rises. Under an absorption cost method, management can push forward costs to the next period when ...
The marginal cost can also be calculated by finding the derivative of total cost or variable cost. Either of these derivatives work because the total cost includes variable cost and fixed cost, but fixed cost is a constant with a derivative of 0. The total cost of producing a specific level of output is the cost of all the factors of production.
Average variable cost (AVC/SRAVC) (which is a short-run concept) is the variable cost (typically labor cost) per unit of output: SRAVC = wL / Q where w is the wage rate, L is the quantity of labor used, and Q is the quantity of output produced. The SRAVC curve plots the short-run average variable cost against the level of output and is ...
Adding this to the variable costs of $300 per coach produced a full cost of $325 per coach. This method tended to slightly distort the resulting unit cost, but in mass-production industries that made one product line, and where the fixed costs were relatively low, the distortion was very minor.
Total costs = fixed costs + (unit variable cost × number of units) Total revenue = sales price × number of unit These are linear because of the assumptions of constant costs and prices, and there is no distinction between units produced and units sold, as these are assumed to be equal.