Question

I have a problem;
The problem has given me the fixed cost of 9,8 million per period.
The problem has also given me information about the number of units in each period, and the differential cost per period.

I have to find Variable cost per unit, total cost per unit and differential cost per unit.

How do I find the variable cost to further find out the variable cost per unit?

Answer 1

Variable costs are the sum of all the labour and materials needed to produce a unit of your product. Your overall variable cost, compounded by the number of units generated, is equal to the variable cost per unit. Your average variable cost is the same as your total variable cost, divided by the number of units produced.

Variable costs vary as they can rise and fall as you produce more or less of your commodity. The more products you sell, the more cash you make, but some of this cash will have to pay for more products to be produced. So, to actually turn a profit, you would need to manufacture more units. And because each unit needs a certain amount of energy, a larger number of units would increase the variable cost of manufacturing them.

The total variable cost is the sum of the variable cost of every single item that you have produced. Calculate overall variable cost by multiplying the cost by number of goods you have produced to make one unit of your product.

For example, if making one unit of your product costs $50, and you've made 20 units, your total variable cost is $50 x 20, or $1,000.