Variable Cost |Average Variable cost

 

Variable Cost And Average Variable cost

Variable costs are costs that depend on the company's production and sales.

That is, if the production and sales of a company decrease or increase, variable costs will also change as production and sales decrease and increase.

For Example

Raw Materials :If a company's sales increase, that company's production also increases.     Then production will require more raw materials than before and production costs will increase.

Utilities: Production requires gas and electricity.  As production increases, the demand for this fuel will increase.

 Labor: Labor related to production.  If production increases, the demand for labor will increase.  If production decreases, the demand for labor will decrease and labor has to pay wages. So, the cost of labor is variable cost.

Average Variable Cost

Average Variable Cost=Variable Cost/Output 

Average variable cost is the variable cost divided by the output of a production.