Raw materials are the most common and pure variable cost in production. Some more examples of variable costs are given and discussed here: Direct Material The variable cost will be zero if there is no production. The variable costs will increase if the production output increases and decreases with a decrease in output. Let’s assume the variable cost incurred for a cake is $17.įor ingredients(raw materials) like sugar, flour, and milk, the cost incurred is $5įor direct labor, the cost incurred is $11. If the production of an iPod is to be increased or decreased, raw materials and labor cost is to be increased and decreased, respectively. Here, we can see that raw materials and labor costs are variable in nature. ![]() XYZ is an American company with a 1000 iPod order for a price of $1000. The following are examples of variable costing to understand the concept in a better manner: Example 1 A company with fewer variable costs can amplify potential profits and losses since changes in overall revenue directly impact the company’s profit or loss at a constant cost level. A company with many variable costs is more consistent and predictable for a greater profit than a company with fewer variable costs.Total Variable Cost = Total Quantity * Variable cost per unit Total variable cost is the total cost, which is not fixed cost incurred for the total quantity of output expressed as:.Variable costs are directly related to production volume. ![]()
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