Variable Cost Calculator

The variable cost calculator calculates the expenses in proportion to the changing volume of services or goods that a business produces. Calculating variable costs are not like fixed costs, which remain fixed for varying production quantities. These costs go low and high in accordance with the units manufactured in a company. Our tool considers changing cost per unit and output to determine the total variable cost associated with a certain production level.

How to Use Variable Cost Calculator?

The tool allows two different types of calculations:

To Calculate Average Variable Cost:

• Enter the variable cost and output cost
• Click Calculate

To Calculate Variable Cost:

• Enter the total and fixed costs in the respective fields
• Click Calculate

What are Variable Costs?

Variable costs are fluctuating costs that are directly connected to the production output level in a business.

Examples of Variable Cost:

• Cost of Goods Sold: Cost that covers all the expenses from start to end in production.
• Raw Materials: Cost of purchasing raw products to produce the final unit.
• Utilities: Energy costs that depend on the varying production.
• Sales Commissions: Amounts to be paid to the salespersons based on the units sold.

Variable Cost Formula:

You can calculate variable costs by using different equations, which are based on various factors, including:

Formula 01:

Total Variable Costs = Cost Per Unit x Total Number of Units

Formula 02:

Variable Costs = Total Cost of Materials + Total Cost of Labor

Formula 03:

Variable Costs = Total Cost – Fixed Costs

Example Problem (Variable Cost)

A bakery produces cupcakes. Each cupcake costs $0.85 to make, which includes labor and ingredients. If the bakery produces 400 cupcakes in a day, then how to find variable costs for that day?

Solution:

Step 01: Write the Given Values

• Cost per unit (C) = $0.50
• Total number of units (N) = 200

Step 02: Apply the Total Variable Cost Formula:

Total Variable Costs = Cost Per Unit x Total Number of Units

Step 03: Substitute the Values:

Total Variable Costs = $0.85 × 400

Step 04: Calculate Final Result:

Total Variable Costs = $340 (Variable cost associated with the production of the total cupcake)

How to Calculate Variable Cost Per Unit?

To calculate the variable cost per unit, divide the total variable costs by the total output units produced.

Variable Cost Per Unit Formula:

Average Variable Cost Per Unit = Total Variable Costs ÷ Output

Impact of Variable Costs on Profitability:

There is an inverse impact of variable costs on the profitability of a business. 

For example:

If a company manufactures 1000 more T-shirts in addition to its regular production, the expenses increase. This increases the variable cost and lowers the gross profit.

Contrary to this, if the same company produces 1000 fewer T-shirts than normal production, the variable costs decrease and it increases the gross profit margin.

Additional Resources:

Finance Strategists: Prime Cost