What are variable costs? (Full explanation)

Variable costs are costs whose total amount increases proportionally to the amount of production. If the amount of production in a certain area of ​​activity increases and if the amount of production decreases, the total amount decreases in proportion to the amount of production. However, the amount per unit remains constant. But there are also general production costs. These are material costs, direct labor costs and energy are examples of variable costs. What are variable costs? Let’s find out more.

Although many people accept that it is constant per unit, they also see it as the increasing number of goods or services. These outputs show a linear, sometimes increasing, sometimes only decreasing trend per unit of production. The variable costs show a linear trend in the management accounting analysis.

how to find variable costs

How to find variable costs

Variable costs; direct raw materials and supplies, It consists of direct labor and variable general cost of production. In companies with an advanced level of automation, the variable costs consist of direct raw material and material costs and variable overheads. This method first separates general production costs as fixed and variable. It is effective in planning, determining product prices, identifying break-even points, analyzing the results of business activities, and making management decisions.

The effect of variable costs also has a great influence on decision-making. Any inaccuracies that may arise also disappear. The disadvantage of the method is that it is difficult for a company to separate fixed and variable overheads. This sometimes leads to errors in the classification of semi-variable outputs.

how to calculate the total variable cost

How to calculate the total variable cost

The total cost is an economic metric that adds all the expenses paid to:

  • manufacture a product
  • buy an investment,
  • acquire a team,
  • and includes cash spending and the opportunity cost of your choice.

In contrast to cost accounting, total costs in the economy include the total opportunity cost of each factor of production as part of fixed or variable costs.

Total cost is the total economic production cost. It consists of variable costs that vary depending on the number of goods produced. It also consists of the involvement of manpower and raw materials. The rate of change in total cost when the amount produced changes is called the marginal cost. Experts also call it the variable cost of the edge unit. Understanding the classification of your costs is critical to the calculation. Understanding the difference between variable costs and other costs will help you classify costs better. These categorize the costs.

After the classification process is complete, add any variable costs for a period of time. After you find the total variable cost for the last year, you need to divide the variable cost by the volume of production. The product will have variable costs.

In short, a company’s total cost (TC) is the sum of total variable costs (CVT) and total fixed costs (CFT). So CT = CFT + CVT

Variable cost FAQ

What do variable total costs mean?

These are costs that vary depending on the total production volume.

What do direct costs mean?

The costs resulting from the direct transfer. These are related costs such as direct material and direct labor. This applies to the cost of the product or service produced and the transfer of the remaining indirect costs directly to the income statement for the period.

What do semi-variable costs mean?

Semi-variable costs; Some of them are fixed costs, others are variable. The variable parts of the semi-variable costs increase with the volume of activity.

What do mixed costs mean?

It’s that with the concepts of mixed costs, variable costs, and fixed costs. Variable cost changes with production.

What do variable expenses mean?

Variable expenses are material and labor costs that vary in proportion to the amount produced.

Conclusion on variable costs

The variable cost method is a cost method based on the principle of loading the product cost. It only varies depending on the volume of production and sales. With this method, all fixed costs are a period expense and not a cost element. Fixed costs are therefore not included in the cost of semi-finished or finished product stocks. They are deducted directly from the sales for the respective period. If you want to calculate your variable costs, you can always calculate these parameters with Excel.

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