How is knowledge about the variable cost price advantageous for a company? Therefore, the knowledge and efficient management of variable costs are very crucial as it helps the management team to act according to the changes that occur in the marketplace and the growing patterns of the company. Additionally, consideration of variable cost is important while determining prices. The variable costs do not increase or decrease according to the activities of any company but rather according to the inputs and outputs of the production. Total Variable Cost = Total Quantity of Output X Variable Cost per Unit of Output. Below is the formula involving the calculation of variable cost. The output quantity must be multiplied by the variable cost per unit of output. Calculation of Variable Costįor calculating variable cost a simple formula is to be followed. Some variable cost examples are direct wages, packaging, inputs in production, cost of goods sold (COGS), commission, and other utilities. The variable cost is directly proportional to the level of production. Variable cost is the cost of those elements which change according to the changes in production and sales of a company. However, variable cost is the costs that change depending upon the production and revenues of the business. Fixed costs are those costs that remain uniform irrespective of sales and production. A business usually deals with variable costs and fixed costs. Cost management is one of the most critical elements that are required to run a business. In the corporate world management of cost is a huge aspect of the business.
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