How to Calculate Variable Cost per Unit

Variable Cost per Unit

A business has costs which are classified as shown below.

  1. Direct Labor 40,000 – variable
  2. Utilities 22,000 – 80% variable
  3. Materials 35,000 – variable

Total Variable Costs

The total variable costs of the business are calculated as follows.

Variable cost = Direct labor + 80% Utilities + Materials
Variable cost = 40,00 + 80% x 22,000 + 35,000
Variable cost = 92,600

Variable Cost per Unit

If the number of units produced in the period is 1,000 then the variable cost per unit is calculated as follows.

Variable cost/unit = Variable cost / Number of units
Variable cost/unit = 92,600 / 1,000
Variable cost/unit = 92.60

Expected Variable Costs

If in the next period the number of units produced is expected to be 1,200 then the expected variable cost is calculated as follows.

Variable cost = Units x Variable cost per unit
Variable cost = 1,200 x 92.60
Variable cost = 111,120

The unit variable cost remains at 92.60 but the total variable cost is expected to rise form 92,600 to 111,120

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