- Total variable expense = total quantity of output x variable cost per unit of output.
- Variable cost per unit = total variable expenses/number of units.
How to calculate variable expenses
You can calculate variable expenses in several ways:
How to compute variable costs
Adding up each variable expense individually is the first step in determining the total variable expenses:
How to calculate total variable expenses using variable cost per unit
If you know the variable cost per unit, you can also use the following formula to determine the total variable expense:
Total variable costs are calculated by multiplying the output’s overall quantity by its variable cost.
How to calculate variable cost per unit
The following formula can be used to determine variable cost per unit if you know your total variable costs:
Variable cost per unit = total variable expenses/number of units
What are variable expenses?
Costs known as “variable expenses” change based on an organization’s output. Unlike fixed expenses, which remain the same regardless of production, these costs rise as the production of goods or services rises and fall if production declines.
Examples of variable expenses include:
Businesses frequently keep track of variable costs to make sure they are not spending too much in one area or charging too little for their products or services. For instance, a manager might observe that, despite only a 5% increase in production, raw material costs rose by 30% in the previous quarter. The manager can then ascertain what caused the cost increases and come up with a fix, like switching suppliers, revising the company’s orders, or developing more effective production techniques. You can save money and boost your company’s profits by decreasing your variable costs.
The cost of variable expenses per unit can also be used to help determine prices. For instance, if you know a product requires $4. You will need to charge more than that when you sell it because it costs 15 in variable expenses to produce. To make sure you are turning a profit on each item sold, you will also need to account for fixed costs.
Variable expense examples
Here are two examples of calculating variable expenses:
Example 1
Consider Chef and Co. , a manufacturer that produces cookware. The accounting manager wants to determine the company’s annual total for variable costs. The manager lists all of the factory’s expenses and chooses the following variable costs:
The manager must multiply each expense by 12 to determine the yearly costs for variable expenses.
The total variable expenses for Chef and Co. for the year is the sum of these costs:
Total variable costs are $54,000, $33,600, $86,400, $18,000, and $78,000, for a total of $270,800.
Example 2
Peace Fur Life is a provider of pet insurance policies. To determine if there are any areas to cut back on spending each quarter, the CFO, Diane, wants to calculate the company’s variable expenses per insurance policy. First, Diane estimates that the company’s total variable costs are $40,000 per quarter, and they consist of:
Next, Diane ascertains that in the most recent quarter, 600 insurance policies were sold by Peace Fur Life. By dividing $40,000 by 1,200, you can now calculate variable costs per policy.
Variable costs per unit equal total variable costs divided by the quantity of units, or $40,000.1200, or $33. 33 per policy.
How to Calculate Variable Costs? [Quick and Easy]
FAQ
What is a variable expense example?
Typical household variable costs could be: The price of home upkeep, like painting or lawn care General expenses such as clothing, groceries, and car maintenance. Resource expenses such as fuel, electricity, gas, and water.
How do you calculate variable and fixed costs?
Subtract your variable costs from your total production costs by multiplying them by the quantity of units you produced. This will give you your total fixed cost.
What is the formula for variable expense ratio?
The variable expense ratio calculates a company’s variable costs as a percentage of sales. Simply divide the total variable costs of the company by the total net sales of the company to determine the variable expense ratio. Add 100 to the result to convert it to a percentage.
What is the total variable expense?
Total variable costs for a business are the costs that fluctuate in relation to total production over a specific time period. These expenses are directly related to a company’s level of production and may go up or down as a result of that level of production.
