Variable Costs

Question 1

What are variable costs?

Answer 1

Variable costs are costs that do change in line with output/ sales.

Question 2

What is an example of variable costs?

Answer 2

Overtime

Question 3

What is the calculation for variable costs?

Answer 3

Variable costs = variable cost per unit x quantity sold

Question 4

What are unit variable costs?

Answer 4

Unit variable costs is the production cost for each unit produced that can change in line with output or sales.

Question 5

What is an example of unit variable costs?

Answer 5

Materials

Question 6

What is the calculation for unit variable costs?

Answer 6

Unit variable cost = Added cost of materials to make the product

Question 7

Beth is making a hat for an adult. Cotton is £3.40, the cotton lining is £1.50, and the cost of a bow is £0.80. What is the unit variable cost?

Answer 7

Unit variable cost = cost of all materials to produce one product
Unit variable cost = £3.40 + £1.50 + £0.80
Unit variable cost = £5.70

Question 8

The unit variable cost is £6.80 and the quantity sold over one week is 347 products. What is the variable costs over one week?

Answer 8

Variable costs = unit variable cost x quantity sold
Variable costs = £6.80 x 347
Variable costs = £2359.60

Question 9

Jim makes a jacket for an adult. The cost of leather is £5.00, the cost of the cotton lining is £2.40, and the cost of a large badge is £1.50. Jim sells 280 jackets the first month and then he sells 315 jackets the next month. What is Jim’s variable costs for the two months?

Answer 9

Unit variable cost = £5.00 + £2.40 + £1.50 = £8.90
Quantity sold ( two months) = 280 + 315 = 595 jackets 

Variable costs = £8.90 x 595 = £5295.50