That is the variable cost to produce a single kind of product. In this case, the variable cost will be calculated as a sum of raw materials, labour costs, and packaging cost, i.e. ![]() The formula for the variable cost is simple as one just needs to add the various kinds of variable expenses made in the organisation.įor instance, a cupcake company produces 20 units of a cupcake, which requires raw materials worth Rs.500, direct labour costs Rs.1000, and packaging cost Rs.200. With the explanation mentioned above, these can be a few examples of variable cost in an organisation. Hence, the cost of packaging, in this case, is variable as it changes with the increase or decrease in the proportion of final products. That is likely to increase the cost of packaging too. Understandably, the cost of packaging will increase as the company will require more resources for packaging like paper boxes, gift wrap, or human resource. Now say, keeping the demand into consideration they increase their production to 750 units in a day. A company used to produce 500 units of coffee mugs. For instance, the cost of packaging will increase with a change in the volume of production. ![]() Therefore, production output is responsible for varying cost. It means, if a company produces less or more than the estimated quantity of products, then the cost for several expenses change accordingly. Variable cost refers to the cost incurred in various business operations which aren’t fixed and may change depending upon the change in volume of production.
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