ECONOMICS

Detailed explanation-1: -Variable Cost Formula. To calculate variable costs, multiply what it costs to make one unit of your product by the total number of products you’ve created. This formula looks like this: Total Variable Costs = Cost Per Unit x Total Number of Units.

Detailed explanation-2: -Examples of variable costs are raw materials, piece-rate labor, production supplies, commissions, delivery costs, packaging supplies, and credit card fees.

Detailed explanation-3: -Variable costs are a central part in determining a product’s contribution margin, the metric used to determine a company’s break-even or target profit level. Examples of variable costs include raw materials, labor, utilities, commission, or distribution costs.

Detailed explanation-4: -Thus, the materials used as the components in a product are considered variable costs, because they vary directly with the number of units of product manufactured.