So, variable cost per unit of soap is $13 and total variable cost of soap is $65,000. Total Variable Cost = Quantity * Variable Cost Per Unit Variable Cost Per Unit = Labor Cost Per Unit + Direct Material Per Unit + Direct Overhead per Unit Total Production done by the company in one month is 5,000 now we will calculate the cost of soap per unit. Ltd produces handmade soaps, cost of raw material per unit is $5, the labor cost of production per unit is $7, fixed cost for a month is $500, overhead cost per unit is $1 and salary for office and sales staff is $3,000. Let’s see an example to understand Variable cost per unit better.Ī company named Nile Pvt. Direct overhead is another extra cost required for the production of one unit it is variable as it depends on the quantity of production.We can say that it is directly proportional to the variable cost. Direct material is the raw material cost per unit as it depends on the quantity of production.Labor cost is taken as labor cost per unit as it depends on the quantity of production.Variable cost per unit is the sum of labor cost per unit, direct material per unit and direct overhead per unit. It is said variable cost per unit because it depends on the quantity of production. Variable cost per unit is the cost of one unit of production but it includes only variable cost not fixed one. Total Variable Cost = Quantity of Output * Variable cost per unit of output Variable Cost Per Unit Formula Total variable cost is variable as it depends on the quantity of the product. Total variable cost is calculated by multiplying the quantity of output into variable cost per unit of output as variable cost depends on the quantity of production which will result in total variable costing of a product. Total cost is sum of fixed cost and variable cost.Fixed cost is $200 irrespective of quantity.Total variable cost is the sum of labor cost and cost of raw material.Labor costs per unit will multiple with the total quantity of plastic bag manufactured. Raw material costs per unit will multiple with the total quantity of plastic bag manufactured. Now, we will calculate the variable cost and total cost. Variable Costing Formula – Example #2Ī company manufactures plastic bags, the raw material cost for production of 1 bag is $2, labor cost for manufacturing of 1 plastic bag is $10 and fixed cost of the company is $200. Now, let us see one more example to calculate the total variable cost and its dependency on quantity. Total expense done in business is the sum of variable cost and fixed cost where fixed cost is fixed irrespective of quantity manufacture or produced whereas variable cost depends on quantity produced. So, total variable cost of 1000 boxes is $20,000. Total Variable Cost = Quantity of Output * Variable Cost Per Unit of Output The total variable cost of boxes will be:.
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