Know the Details of Variable Costs from Expert Professionals as Myhomeworkhelp.Com!
For any company or organization, there are basically two types of costs that are taken into consideration – fixed costs and variable costs. The variable costs in the company change with levels of production. For example – A packaging company suddenly has an unexpected increase in orders. So the variable cost associated with packaging such as staff hours will increase increasing the overall expense. It is both variable and fixed costs that make up the total costs.
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How to calculate variable costs?
For a company to get details of its total production and profit rates, it is very important that it has an idea of the variable costs. To calculate variable costs that include rent, and other type of advertisements within it, a detailed multiplication has to be done.
For example, the total variable cost for 1000 units of production at a per unit cost of $4.57 is $4570. In case you wish to have a detailed idea of this concept, variable cost basis homework help manuals are the best options.
Importance of Variable Costs
Fixed Costs remain the same throughout the time whereas variable costs will show the increased number of units produced accurately as it is directly correlated. One of the ways to effectively determine on how to decrease input cost is to divide the variable cost by the total revenue. A company with more variable costs is likely to have more predictable per unit costs and profits. Variable costs take into account and help to find out break even points in business.
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Impact of variable costs on profits
- An organization with greater variable costs is likely to be more profitable. As the variable costs are higher, the break-even point is small, and this yields a higher profit margin per unit of goods sold.
- As the production rate increases, it becomes impossible to negotiate pre-existing purchasing agreements to reduce your increasing per unit costs. So, in this case, the variable costs associated with production have to be reduced to achieve the desired profit margin.
- Direct labor variable costs have to be handled Otherwise, it may adversely affect profitability.
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