ECONOMICS

Detailed explanation-1: -Example of Variable Overhead Let’s say, for example, a mobile phone manufacturer has total variable overhead costs of $20, 000 when producing 10, 000 phones per month. As a result, the variable cost per unit would be $2 ($20, 000/10, 000 units).

Detailed explanation-2: -Variable costs vary in a linear fashion with the production level. However, when stated on a per unit basis, variable costs remain constant across all production levels within the relevant range. The following two charts depict this relationship between variable costs and output volume.

Detailed explanation-3: -Variable overhead costs are costs that change as the volume of production changes or the number of services provided changes. Variable overhead costs decrease as production output decreases and increase when production output increases. If there is no production output, then there would be no variable overhead costs.

Detailed explanation-4: -Variable cost: A variable cost remains constant on a per unit basis, but changes in total in direct relation to changes in volume. Fixed cost: A fixed cost remains constant in total amount, but changes, if expressed on a per unit basis, inversely with changes in volume.