Variable Cost .

• Variable Cost

https://store.theartofservice.com/the-variable-cost-toolkit.html

Economies of scale

1 In microeconomics, economies of scale are the cost advantages that enterprises obtain due to size, with

cost per unit of output generally decreasing with increasing scale as

fixed costs are spread out over more units of output. Often operational

efficiency is also greater with increasing scale, leading to lower

variable cost as well.https://store.theartofservice.com/the-variable-cost-toolkit.html

Data center Green datacenters

1 Datacenters in arctic locations where outside air provides all cooling are

getting more popular as cooling and electricity are the two main variable

cost components.


Small business Problems faced by small businesses

1 In addition to ensuring that the business has enough capital, the

small business owner must also be mindful of contribution margin (sales

minus variable costs)


Scalability

1 The concept of scalability is desirable in technology as well as business settings. The base concept is consistent – the ability for a business or technology to accept increased volume without impacting the contribution margin (= revenue − variable costs). For example, a given piece of equipment may

have capacity from 1–1000 users, and beyond 1000 users, additional equipment is needed

or performance will decline (variable costs will increase and reduce contribution margin).


Cost accounting Origins

1 In the early industrial age, most of the costs incurred by a business were what modern accountants call "variable costs" because

they varied directly with the amount of production. Money was spent on labor, raw

materials, power to run a factory, etc. in direct proportion to production. Managers could simply total the variable costs for a product and use this as a rough guide for

decision-making processes.



1 However, with the growth of railroads, steel and large scale

manufacturing, by the late nineteenth century these costs were

often more important than the variable cost of a product, and

allocating them to a broad range of products lead to bad decision making



1 Therefore, total variable cost for each coach was

$300


Cost accounting Classification of costs

1 By Behavior: fixed, variable, semi-variable. Costs are classified according to

their behavior in relation to change in relation to production volume within given

period of time. Fixed Costs remain fixed irrespective of changes in the production volume in given period of time. Variable

costs change according to volume of production. Semi-variable Costs costs are

partly fixed and partly variable.


Cost accounting Standard cost accounting

1 For example: if the railway coach company normally produced 40

coaches per month, and the fixed costs were still $1000/month, then

each coach could be said to incur an Operating Cost/overhead of $25 =($1000 / 40). Adding this to the variable costs of $300 per coach produced a full cost of $325 per

coach.https://store.theartofservice.com/the-variable-cost-toolkit.html

Cost accounting Marginal costing

1 A relationship between the cost, volume and profit is the contribution margin. The

contribution margin is the revenue excess from sales over variable costs. The concept of contribution margin is particularly useful in the planning of business because it gives an insight into the potential profits that can

generate a business. The following chart shows the income statement of a company

X, which has been prepared to show its contribution margin:


Cost accounting Marginal costing

1 Variable costs as a percentage of sales are equal to 100% minus the

contribution margin ratio. Thus, in the above income statement, the variable

costs are 60% (100% - 40%) of sales, or $648,000 ($1'080,000 X 60%). The total contribution margin $432,000, can also be computed directly by multiplying the sales by the contribution margin ratio

($1'080,000 X 40%).


Inventory Theory of constraints cost accounting

1 Throughput accounting recognizes only one class of variable costs: the truly variable costs, like materials

and components, which vary directly with the quantity produced


Automotive engineering - Product Engineering

1 Cost: The cost of a vehicle program is typically split into the effect on the variable cost of the vehicle, and the

up-front tooling and fixed costs associated with developing the

vehicle. There are also costs associated with warranty reductions,

and marketing.


Revenue - Financial statement analysis

1 Gross Margin is a calculation of revenue less cost of goods sold, and is used to determine how well sales

cover direct variable costs relating to the production of goods.


Pricing - Elements of pricing

1 The price floor is determined by production factors like costs (often only variable costs are taken into

account), economies of scale, marginal cost, and degree of

operating leverage


Monopoly - Sources of monopoly power

1 In addition to barriers to entry and competition, barriers to exit may be a source of market power. Barriers to exit are market conditions that make it difficult or expensive for a company to end its involvement with a market. Great liquidation costs are a primary barrier for exiting. Market exit and shutdown are separate events. The decision whether to shut down or operate is not affected by exit barriers. A company will shut down if price

falls below minimum average variable costs.


Monopoly - Monopolist shutdown rule

1 A monopolist should shut down when price is less than average variable cost for

every output level. – in other words where the demand curve is entirely below the

average variable cost curve. Under these circumstances at the profit maximum level

of output (MR = MC) average revenue would be less than average variable costs and the monopolists would be better off

shutting down in the short term.


Recruitment process outsourcing - Benefits

1 RPO solutions are also claimed to change fixed investment costs into

variable costs that flex with fluctuation in recruitment activity


Business process outsourcing - Benefits and limitations

1 21, pp 7–15 A variable cost structure helps a company responding to

changes in required capacity and does not require a company to invest

in assets, thereby making the company more flexible.Gilley, K.M.,

Rasheed, A


Pandora Radio - Business model

1 High variable costs mean that Pandora does not have significant

operating leverage, and in the next couple years might actually have

negative operating leverage due to an unfavorable shift in product mix

towards mobile


Scalable

1 The concept of scalability is desirable in technology as well as business settings. The base concept is consistent – the ability for a business or technology to accept increased volume without impacting the contribution

margin (= revenue minus; variable costs). For example, a given piece of equipment may

have capacity from 1–1000 users, and beyond 1000 users, additional equipment is needed

or performance will decline (variable costs will increase and reduce contribution margin).


Demand response - Electricity pricing

1 In virtually all power systems electricity is produced by generators that are dispatched in merit order,

i.e., generators with the lowest marginal cost (lowest variable cost of

production) are used first, followed by the next cheapest, etc., until the instantaneous electricity demand is

satisfied


Wheat - Diseases

1 Fungicides, used to prevent the significant crop losses from fungal

disease, can be a significant variable cost in wheat production


Biomass briquettes - Cofiring

1 The process is primarily used to decrease CO2 emissions despite the resulting lower energy efficiency and

higher variable cost


Business efficiency

1 The 'efficiency ratio', a ratio that typically applies to banks, in simple terms is defined as expenses as a

percentage of revenue ('expenses / revenue'), with a few variations. A

lower percentage is better since that means expenses are low and earnings are high. It relates to

operating leverage, which measures the ratio between fixed costs and

variable costs.https://store.theartofservice.com/the-variable-cost-toolkit.html

Economy of scale

1 In microeconomics, 'economies of scale' are the cost advantages that

enterprises obtain due to size, throughput, or scale of operation,

with cost per unit of output generally decreasing with increasing scale as

fixed costs are spread out over more units of output. Often operational

efficiency is also greater with increasing scale, leading to lower

variable cost as well.https://store.theartofservice.com/the-variable-cost-toolkit.html

Strategic sourcing - Cooperative sourcing

1 This is especially common in IT-oriented industries due to low to no variable costs, e.g


Premium-rate telephone number - Telephone numbers in Spain|Spain

1 Also there are other range for information services (weather, white

pages, etc...), there are all the numbers starting with 118, they can have 5 or 6 digits with a variable cost

per number. 11818 is free from Telefónica's telephone cabins. Previously 11818 was 1003.


Financial management for IT services - IT accounting

1 Variable Costs: Any expenses that vary in the short-term based on the level of services provided, resources

consumed, or other factors. For example, energy costs are variable based on the amount consumed.


Gasoline gallon equivalent - Miles per gallon of gasoline equivalent (MPGe)

1 Charts on this page show variable costs of electricity for the BTU

equivalent of a Gallon of Gasoline at select local retail prices. That does not address the relative thermal efficiency of an electric traction

motor (80% to 99%) vs the thermal efficiency of an internal combustion

engine (15% to 25%). This is a significant difference.


Water supply - Costs and financing

1 The cost of supplying water consists to a very large extent of fixed costs (capital costs and personnel costs)

and only to a small extent of variable costs that depend on the amount of water consumed (mainly energy and

chemicals)


Money laundering - Methods

1 * Cash-intensive businesses: In this method, a business typically involved in receiving

cash uses its accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings.

Service businesses are best suited to this method, as such businesses have no variable costs, and it is hard to detect discrepancies between revenues and costs. Examples are parking buildings, strip clubs, tanning beds,

and casinos.


Learning curve - Examples and mathematical modelling

1 :This form of learning curve is used extensively in industry for cost

projections.http://classweb.gmu.edu/aloerch/LearningCurve%20Basics.pdf

Department of Defense Manual Number 5000.2-M, mandates the use

of learning curves for costing of defense programs (variable costs of

production)


Lifetime value - Construction

1 The CLV model has only three parameters: (1) constant margin (contribution after

deducting variable costs including retention spending) per period, (2) constant retention probability per period, and (3) discount rate. Furthermore, the model assumes that in the event that the customer is not retained, they are lost for good. Finally, the model assumes

that the first margin will be received (with probability equal to the retention rate) at the

end of the first period.


Theory of constraints - Finance and accounting

1 The primary measures for a TOC view of finance and accounting are: throughput, operating expense and

investment. Throughput is calculated from sales minus totally variable

cost, where totally variable cost is usually calculated as the cost of raw materials that go into creating the

item sold.


CVP analysis

1 CVP analysis expands the use of information provided by breakeven

analysis. A critical part of CVP analysis is the point where total revenues equal total costs (both fixed and variable costs). At this break-even point, a company will

experience no income or loss. This break-even point can be an initial examination that precedes more

detailed CVP analysis.https://store.theartofservice.com/the-variable-cost-toolkit.html

CVP analysis

1 * Variable cost per unit


CVP analysis - Assumptions

1 * Constant variable cost per unit;



1 * contribution stands for sales minus variable

costs.



1 Therefore it gives us the profit added per

unit of variable costs.


CVP analysis - Basic graph

1 * 'V' = 'Unit variable cost' ('variable cost per

unit')


CVP analysis - Break down

1 One can decompose total costs as fixed costs plus variable

costs:



1 Following a matching principle of matching a portion of sales against variable costs, one can decompose

sales as Contribution margin|contribution plus variable costs, where 'contribution' is what's left

after deducting variable costs. One can think of contribution as the

marginal contribution of a unit to the profit, or contribution towards

offsetting fixed costs.https://store.theartofservice.com/the-variable-cost-toolkit.html


1 Subtracting variable costs from both costs and sales yields the simplified diagram and equation for profit and

loss.



1 Mathematically, the contribution graph is obtained from the sales

graph by a shear mapping|shear, to be precise \left(\begin1 0\\ -V 1\end\

right), where V are unit variable costs.


CVP analysis - Limitations

1 CVP is a 'short run', 'marginal' analysis: it assumes that unit

variable costs and unit revenues are constant, which is appropriate for

small deviations from current production and sales, and assumes a neat division between fixed costs and variable costs, though in the long run

all costs are variable


Fixed cost

1 In economics, 'fixed costs', 'indirect costs' or 'overheads' are business

expenses that are not dependent on the level of goods or services

produced by the business. They tend to be time-related, such as salaries or rents being paid per month, and are often referred to as overhead

costs. This is in contrast to variable costs, which are volume-related (and

are paid per quantity produced).https://store.theartofservice.com/the-variable-cost-toolkit.html

Fixed cost - Areas of confusion

1 In business planning and management accounting, usage of

the terms fixed costs, variable costs and others will often differ from usage in economics, and may

depend on the context. Some cost accounting practices such as activity-based costing will allocate fixed costs to business activities for profitability measures. This can simplify decision-

making, but can be confusing and controversial.


Fixed cost - Areas of confusion

1 In accounting terminology, fixed costs will broadly include almost all

costs (expenses) which are not included in cost of goods sold, and variable costs are those captured in

costs of goods sold


Community-supported agriculture - Distribution and marketing methods

1 Share prices are mostly determined by overhead costs of production, but are also determined by share prices

of other CSAs, variable costs of production, market forces, and income level of the community


Proletariat - Usage in Marxist theory

1 One part of the wealth produced is used to pay the workers' wages (variable costs), another part to renew the means of production

(constant costs) while the third part, surplus value is split between the capitalist's private takings (profit), and the money used to pay rents,

taxes, interests, etc


Budget management - Classification of costs

1 # By Behavior: fixed, variable, semi-variable. Costs are classified

according to their behavior in relation to change in relation to production volume within given period of time. Fixed Costs remain fixed irrespective of changes in the production volume

in given period of time. Variable costs change according to volume of production. Semi-variable Costs costs are partly fixed and partly variable.


Budget management - Standard Cost Accounting: Setting Standards and Analyzing Variances

1 :For example: if the railway coach company normally produced 40

coaches per month, and the fixed costs were still $1000/month, then

each coach could be said to incur an Operating Cost/overhead of $25 =($1000 / 40). Adding this to the variable costs of $300 per coach produced a full cost of $325 per

coach.https://store.theartofservice.com/the-variable-cost-toolkit.html

Project management triangle - Cost

1 But beyond this basic accounting approach to fixed and variable costs,

the economic cost that must be considered includes worker skill and

productivity which is calculated using various project cost estimate tools


Refinancing - Risks

1 If the refinanced loan has lower monthly repayments or consolidates other debts for the same repayment, it will result in a larger total interest cost over the life of the loan, and will result in the borrower remaining in

debt for many more years. Calculating the up-front, ongoing, and potentially variable costs of

refinancing is an important part of the decision on whether or not to

refinance.


Cycle stocks - Theory of constraints cost accounting

1 Throughput accounting recognizes only one class of variable costs: the truly variable costs, like materials

and components, which vary directly with the quantity produced


Economic Order Quantity Model - The Total Cost function

1 - Purchase cost: This is the variable cost of goods: purchase unit price

times; annual demand quantity. This is c times; D


Cost of goods sold - Alternative views

1 *Throughput Accounting, under the Theory of Constraints, under which

only Totally variable costs are included in cost of goods sold and inventory is treated as investment.


Overhead (business)

1 The term overhead is usually used when grouping expenses that are necessary to the continued

functioning of the business but cannot be immediately associated with the products or

services being offered (i.e.,do not directly generate profit

(accounting)|profits).[http://www.pmhut.com/pmo-and-project-management-dictionary PMO and

Project Management Dictionary] Closely related accountancy|accounting concepts are fixed costs and variable costs as well as indirect costs and

direct costs.


Profit maximization - Basic definitions

1 Fixed cost and variable cost, combined, equal total cost


Sunk-cost fallacy

1 The variable costs for this project might include data centre power usage, etc.


Financial risk - Diversification

1 The returns from different assets are highly unlikely to be perfectly

correlated and the correlation may sometimes be negative. For instance,

an increase in the price of oil will often favour a company that

produces it, but negatively impact the business of a firm such an airline

whose variable costs are heavily based upon fuel.


News Vendor Model - Cost based optimization of inventory level

1 * c_v – variable cost. This cost type expresses the production cost of one product.

[$/product]


Alfred Marshall - Principles of Economics (1890)

1 Marshall pointed out that it is the prime or variable costs, which

constantly recur, that influence the sale price most in this period


Abuse of dominance - Monopolist shutdown rule

1 A monopolist should shut down when price is less than average variable cost for

every output level – in other words where the demand curve is entirely below the

average variable cost curve. Under these circumstances at the profit maximum level

of output (MR = MC) average revenue would be less than average variable costs and the monopolists would be better off

shutting down in the short term.


Marginal cost - Cost functions and relationship to average cost

1 In the simplest case, the total cost function and its derivative are expressed as follows, where Q

represents the production quantity, VC represents variable costs, FC

represents fixed costs and TC represents total costs.


Marginal cost - Perfectly competitive supply curve

1 The portion of the marginal cost curve above its intersection with the

average variable cost curve is the supply curve for a firm operating in a

perfect competition|perfectly competitive market


Marginal cost - Relationship to fixed costs

1 This can be illustrated by graphing the short run total cost curve and the

short run variable cost curve


Perfect competition - The shutdown point

1 In the short run, a firm operating at a loss [R R then the firm is not even covering its production costs and it should immediately shut down. The

rule is conventionally stated in terms of price (average revenue) and

average variable costs. The rules are equivalent (If you divide both sides of

inequality TR VC the firm should shut down.


Perfect competition - Short-run supply curve

1 Technically the SR supply curve is a discontinuous function composed of the segment of the MC curve at and

above minimum of the average variable cost curve and a segment that runs with the vertical axis from

the origin to but not including a point parallel to minimum average variable

costs.Binger Hoffman, Microeconomics with Calculus, 2nd

edhttps://store.theartofservice.com/the-variable-cost-toolkit.html

Predatory pricing - Concept

1 There are various tests to assess whether the pricing is predatory: Areeda-Turner suggest it is below

Short Run Marginal Costs, the AKZO case suggests it is costing below

Average Variable Costs, and the case of United Brands suggests it is simply when the difference in cost between the cost of manufacturing and the

price charged to consumers is excessive


Long run - Short run

1 Costs that are fixed, say from existing plant size, have no impact

on a firm's short-run decisions, since only variable costs and revenues

affect short-run profits



1 * continue producing if average variable cost is less than price per unit, even if average total cost is

greater than price;



1 * shut down if average variable cost is greater than price at each level of output.


Throughput accounting - History

1 When cost accounting was developed in the 1890s, labor was the largest

fraction of product cost and could be considered a variable cost


Throughput accounting - The concepts of Throughput Accounting

1 (Throughput is sometimes referred to as throughput contribution and has

similarities to the concept of contribution in marginal costing

which is sales revenues less variable costs – variable being defined

according to the marginal costing philosophy.)


Throughput accounting - The concepts of Throughput Accounting

1 * Investment (I) is the money tied up in the system. This is money associated with

inventory, machinery, buildings, and other assets and liabilities. In earlier Theory of

Constraints (TOC) documentation, the I was interchanged between inventory and

investment. The preferred term is now only investment. Note that TOC recommends

inventory be valued strictly on totally variable cost associated with creating the inventory, not with additional cost allocations from overhead.


Load shedding - Electricity pricing

1 In virtually all power systems electricity is produced by generators that are dispatched in merit order,

i.e., generators with the lowest marginal cost (lowest variable cost of

production) are used first, followed by the next cheapest, etc., until the instantaneous electricity demand is

satisfied


Price elasticity of demand - Limitations of revenue-maximizing and profit-maximizing pricing strategies

1 In most situations, revenue-maximizing prices are not profit-

maximizing prices. For example, if variable costs per unit are nonzero

(which they almost always are), then a more complex computation of a

similar kind yields prices that generate optimal profits.


Marginal product of labour - Marginal costs

1 Thus only variable costs change as

output increases ∆C = ∆VC = ∆Lw


Profit model - Basic model

1 : w is variable costs per unit sold


Profit model - Model extensions

1 The basic profit model is sales minus costs. Sales are made up of quantity sold multiplied by their price. Costs are usually divided between Fixed

costs and variable costs.


Profit model - Model extensions

1 Notice that w (average unit production cost) includes the fixed and variable costs.


Profit model - Production costs

1 The unit production costs (w) can be separated into fixed and variable costs:


Profit model - Production costs

1 * v = variable costs per unit;


Profit model - Variable-cost elements

1 Thus the variable cost v * q can now be elaborated into:


Operating margin

1 It is a measurement of what proportion of a company's revenue is left over, before taxes and other indirect costs (such as

rent, bonus, interest, etc.), after paying for variable costs of production as wages, raw materials, etc. A good operating margin is needed for a company to be able to pay

for its fixed costs, such as interest on debt. A higher operating margin means that the company has less financial risk.


Flu - Society and culture

1 Influenza produces variable cost|direct costs due to lost productivity

and associated medical treatment, as well as indirect costs of preventative

measures


Electricity sector in Peru - Installed capacity

1 In 2006, 72% of Peru’s total electricity generation came from hydroelectric plants

(total generation was 27.4 TWh), with conventional thermal plants only in

operation during peak load periods or when hydroelectric output is curtailed by weather events.[http://www.eia.doe.gov/emeu/cabs/Peru/Electricity.html EIA] This “underuse” of the country’s thermal capacity is due to the high variable costs of thermal generation


Price discrimination - Two necessary conditions for price discrimination

1 (Wiley 2003) Airlines typically attempt to maximize revenue rather than profits because airlines variable

costs are small


Third party logistics - Advantages and disadvantages of third party logistics

1 Third party logistics provider can provide a much higher flexibility in geographic aspects

and can offer a much larger variety of services than the clients could provider their selves. In

addition to that, the client gets flexibility in resources and workforce size and logistics fix costs turn into variable costs.Simchi-Levi and

Kaminsky, Designing and Managing the Supply Chain: Concepts,Strategies and Case Studies, third edition, McGraw-Hill International Edition,

page 251


Markup (business)

1 The total cost reflects the total amount of both Fixed cost|fixed and Variable cost|variable expenses to produce and distribute a Product

(business)|product


Everyday low price - Concept

1 Hi-Lo strategies generally result in lower variable costs, since

promotional retailers can move more products by offering discounts


Economic cost - Components of Economic Costs

1 **Variable cost (TVC): Variable costs are the costs paid to the variable

input. Inputs include labour, capital, materials, power and land and

buildings. Variable inputs are inputs whose use vary with output.

Conventionally the variable input is assumed to be labor.


Economic cost - Components of Economic Costs

1 **Average variable cost (AVC) = variable costs divided by output. AVC =T VC/q. The average variable cost curve is typically U-shaped. It lies below the average cost curve and

generally has the same shape - the vertical distance between the

average cost curve and average variable cost curve equals average

fixed costs. The curve normally starts to the right of the y axis because

with zero production


Yield management - Use by industry

1 The less variable cost there is, the more the additional revenue earned will contribute to the overall profit


Absorption costing

1 A costing method that includes all manufacturing costs—direct materials,

direct labour, and both variable and fixed manufacturing overhead—in unit product

costs. According to the ICMA London Absorption costing is a principle whereby

fixed as well as variable costs are allocated to cost unit the term may be applied where production costs only or costs of all function are so allocated.


BahnCard - Motivation

1 The card allowed a two-dimensional pricing schedule, which consists of card price (a fixed cost), and ticket price (a variable cost). Once

a passenger has bought a card, its price becomes a sunk cost and this makes the train

more like the automobile, which is also characterised by high fixed costs. The

decision whether to take a car or train for a particular journey depends mostly on the

Marginal cost|marginal price per kilometer, not on the total cost.


Cost management - Origins

1 In the early industrial age, most of the costs incurred by a business were

what modern accountants call variable costs because they varied

directly with the amount of production. Money was spent on

labor, raw materials, power to run a factory, etc. in direct proportion to production. Managers could simply

total the variable costs for a product and use this as a rough guide for

decision-making processes.


Cost management - Origins

1 Some costs tend to remain the same even during busy periods, unlike variable costs, which

rise and fall with volume of work. Over time, these fixed costs have become more important to managers. Examples of fixed costs include the depreciation of plant and equipment, and the cost of departments such as maintenance, tooling, production control, purchasing, quality control, storage and handling, plant supervision

and engineering.Performance management, Paper f5. Kapalan publishing UK. Pg 3


Total cost

1 In economics, and cost accounting, 'total cost' ('TC') describes the total economic cost

of production and is made up of variable costs, which vary according to the quantity of a good produced and include inputs such as labor and raw materials, plus fixed costs, which are independent of the quantity of a good produced and include inputs (Capital

(economics)|capital) that cannot be varied in the short term, such as buildings and

machinery.


Total cost

1 Total cost in economics includes the total opportunity cost of each factor of production as part of its fixed or

variable costs.


Total cost

1 The rate at which total cost changes as the amount produced changes is

called marginal cost. This is also known as the marginal unit variable

cost.


Total cost

1 If one assumes that the unit variable cost is constant, as in cost-volume-

profit analysis developed and used in cost accounting by the accountants, then total cost is linear in volume,

and given by: total cost = fixed costs + unit variable cost * amount.


Total cost

1 Consequently total cost is fixed costs (FC) plus variable cost (VC) or TC = FC + VC = Kr

+wL.


Total cost

1 Other economic models have the total variable cost curve (and

therefore total cost curve) illustrate the concepts of increasing, and later

diminishing, marginal returns.


Variable cost

1 Variable costs are sometimes called unit-level costs as they vary with the

number of units produced.


Variable cost - Example 1

1 Assume a business produces clothing. A variable cost of this

product would be the direct material, i.e., cloth, and the direct labor. If it takes one laborer 6 yards of cloth

and 8 hours to make a shirt, then the cost of labor and cloth increases if

two shirts are produced.



1 For example, a firm pays for raw materials. When activity is

decreased, less raw material is used, and so the spending for raw

materials falls. When activity is increased, more raw material is used,

and spending therefore rises. Note that the changes in expenses happen with little or no need for managerial

intervention. These costs are variable costs.



1 In retail the cost of goods is almost entirely a variable cost; this is not true of manufacturing where many

fixed costs, such as depreciation, are included in the cost of goods.



1 Although taxation usually varies with profit, which in turn varies with sales volume, it is not normally considered

a variable cost.



1 For some employees, salary is paid on monthly rates, independent of how many hours the employees work. This is a fixed cost. On the other hand, the hours of hourly

employees can often be varied, so this type of labour cost is a variable

cost. The cost of material is a variable cost.


Even aged timber management - Economic Implications

1 Forestry operations have extremely high variable costs- per hour

expenses for harvesting equipment and per kilometer expenses for log

transportation compose a very large portion of the total cost to harvest a

stand


Operational costs - Business operating costs

1 Variable Costs include indirect overhead costs such as Cell Phone

Services, Computer Supplies, Credit Card Processing, Electrical use, Express Mail, Janitorial Supplies,

MRO, Office Products, Payroll Services,Telecom, Uniforms, Utilities,

or Waste Disposal etc.


No-load - United States

1 Variable costs are fixed on a percentage basis


Capitalization rate - Explanatory Examples

1 For example, if a building is purchased for $1,000,000 sale price and it produces $100,000 in positive net operating income (the amount

left over after fixed costs and variable costs is subtracted from

gross lease income) during one year, then:


Sliding scale

1 'Sliding scale fees' are variable costs for products, services, or taxes based on one's ability to pay. Such fees are thereby reduced for those who have

lower incomes or less money to spare after their personal expenses,

regardless of income.


Five and dime - Supply

1 In many countries, stock can be imported from others with lower

variable costs, because of differences in wages, resource costs or taxation.

Usually goods are imported by a general importer, then sold to the

stores wholesale.


Contribution margin

1 “Contribution” represents the portion of sales revenue that is not

consumed by variable costs and so contributes to the coverage of fixed

costs


Contribution margin - Purpose

1 The contribution margin is computed by using a contribution income

statement, a management accounting version of the income

statement that has been reformatted to group together a business's fixed

and variable costs.


Contribution margin - Purpose

1 Contribution is different from gross margin in that a contribution

calculation seeks to separate out variable costs (included in the

contribution calculation) from fixed costs (not included in the

contribution calculation) on the basis of economic analysis of the nature of the expense, whereas gross margin

is determined using accounting standards


Contribution margin - Construction

1 The 'Unit Contribution Margin' (C) is Unit Revenue (Price, P) minus Unit Variable Cost

(V):



1 where TC = TFC + TVC is Total Cost = Total Fixed Cost + Total Variable Cost and X is Number of Units. Thus Profit is Unit Contribution times Number of Units, minus the Total Fixed Costs.



1 From the perspective of the matching principle, one breaks down the

revenue from a given sale into a part to cover the Unit Variable Cost, and a part to offset against the Total Fixed Costs. Breaking down Total Costs as:



1 Thus the Total Variable Costs \text = \text \times \text offset, and the Net

Income (Profit and Loss) is Total Contribution Margin minus Total Fixed

Costs:


Contribution margin - Examples

1 Although this shows only the top half of the contribution format income

statement, it's immediately apparent that Product Line C is Beta's most profitable one, even though Beta

gets more sales revenue from Line B (which is also an example of what is

called Partial Contribution Margin - an income statement that references

only variable costs)https://store.theartofservice.com/the-variable-cost-toolkit.html

Contribution margin - Contribution margin as a measure of efficiency in the operating room

1 A surgical suite can schedule itself efficiently but fail to have a positive contribution margin

if many surgeons are slow, use too many instruments or expensive implants, etc.

These are all measured by the contribution margin per OR hr. The contribution margin per hour of OR time is the hospital revenue generated by a surgical case, less all the hospitalization variable labor and supply

costs. Variable costs, such as implants, vary directly with the volume of cases performed.


Cost driver

1 Generally, the cost driver for short term indirect variable costs may be

the volume of output/activity; but for long term indirect variable costs, the

cost drivers will not be related to volume of output/activity.


Cost curve - Short-run average variable cost curve (SRAVC)

1 Average variable cost (which is a short-run concept) is the variable

cost (typically labor cost) per unit of output: SRAVC = wL / Q where w is the wage rate, L is the quantity of

labor used, and Q is the quantity of output produced. The SRAVC curve plots the short-run average variable cost against the level of output and

is typically drawn as U-shaped.https://store.theartofservice.com/the-variable-cost-toolkit.html

Cost curve - Short-run average total cost curve (SRATC or SRAC)

1 Short run average cost equals average fixed costs plus average variable costs. Average fixed cost continuously falls as production

increases in the short run, because K is fixed in the short run. The shape of the average

variable cost curve is directly determined by increasing and then diminishing marginal

returns to the variable input (conventionally labor).Perloff, J., 2008, Microeconomics:

Theory Applications with Calculus, Pearson. ISBN 978-0-321-27794-7


Cost curve - Long-run average cost curve (LRAC)

1 Natural monopolies tend to exist in industries with high capital costs in relation to variable costs, such as

water supply and electricity supply.


Cost curve - Short-run marginal cost curve (SRMC)

1 The marginal cost curve intersects both the average variable cost curve

and (short-run) average total cost curve at their minimum points


Cost curve - Cost curves and production functions

1 Because the production function determines the variable cost function it necessarily determines the shape

and properties of marginal cost curve and the average cost curves.


Cost curve - Relationship between different curves

1 *Marginal Cost (MC) = dC/dQ; MC equals the slope of the total cost function and of the variable cost

function



1 ** At a level of Q at which the MC curve is above the average total cost or average variable cost curve, the

latter curve is rising.



1 ** If MC is below average total cost or average variable cost, then the latter curve is

falling.



1 ** If MC equals average variable cost, then average variable cost is at its minimum value.


Semi variable cost

1 Calculate variable cost per unit


Semi variable cost

1 Put back into highest total cost and rework variable cost to the output, leaving fixed cost.


Semi variable cost - General form of semi-variable cost

1 * b = The variable cost per unit


Semi variable cost - General form of semi-variable cost

1 The equation makes it very easy to calculate what the total mixed cost

or an unknown factor(fixed cost/variable cost/level of activity)


Monopolistic - Sources of monopoly power

1 In addition to barriers to entry and competition, barriers to exit may be a source of market power. Barriers to exit are market conditions that make it difficult or expensive for a company to end its involvement with a market. Great liquidation costs are a primary barrier for exiting. Market exit and shutdown are separate events. The decision whether to shut down or operate is not affected by exit barriers. A company will shut down if price

falls below minimum average variable costs.


2011–12 FC Barcelona season - July

1 On 21 July, Barcelona completed the transfer of Chile national football team|Chilean Midfielder#Winger|winger Alexis Sánchez from Italy|

Italian club Udinese Calcio|Udinese. The deal is for 5 years and the cost of the transfer is €26 million with

variable cost of €11.5 million.


Product Cycle - Pyramid of Production Systems

1 * cost which can be measured in terms of monetary units and usually consists of fixed and variable cost.


Unit cost

1 The 'unit cost' is the cost incurred by a company to produce, store and sell one unit of a particular product. Unit costs include all fixed costs and all

variable costs involved in production.http://www.investopedia.com/terms/u/unitcost.asp#axzz27lgOi

ykz


Water supplies - Costs and financing

1 The cost of supplying water consists, to a very large extent, of fixed costs (capital costs and personnel costs)

and only to a small extent of variable costs that depend on the amount of water consumed (mainly energy and

chemicals)


Kent State University at Stark - Senior Guest Program

1 Courses taken through the Senior Guest Program are free, however, some classes have variable costs

such as books or special course fees


Variable Costing

1 This artificially inflates profits in the period of production by incurring less cost than would be incurred under a variable costing system.http://www-biz.aum.edu/janheier/ABSORB2020.h

tm ABSORPTION VS VARIABLE COSTING LECTURE - BREAKEVEN

ANALYSIS Variable costing is generally not used for external

reporting purposeshttps://store.theartofservice.com/the-variable-cost-toolkit.html

Variable Costing

1 'Variable costing' - A costing method that includes only variable manufacturing costs--direct

materials, direct labor, and variable manufacturing overhead--in unit

product costs.


Pay on production - History and BackgroundMast, Wolfgang F.: Pay on Production : langfristige Partnerschaft mit Verantwortungstransfer. In: Meier, Horst (Hrsg.): Dienstleistungsorientierte Geschäftsmodelle im

Maschinen- und Anlagenbau : vom Basisangebot bis zum Betreibermodell. Berlin: Springer, 2004. - ISBN 3-540-40816-9. P. 15-

29. 1 Most the costs incurred by the OEM

in PoP are variable costs such as labour and materials, though there is

also in this case an additional variable cost for the equipment for

every car produced


Free-range eggs - Cost

1 The Commission’s report concludes that, if costs were to increase by 20%, which it says is the type of percentage increase in terms of variable costs that producers are

likely to face as a result of switching to free-range, the industry will

potentially suffer a loss of producer surplus of €354 million (EU-25).


International One Design - One-design principles

1 With any racing yacht, the largest contributor to variable costs are the sails


Software business

1 'Software Business' is the commercial activity of the software industry, aimed at producing, buying and selling Software product lines|

software products or software services. The business of software differs from other

businesses, in that its main good is intangible and fixed costs of production are high while

variable costs of production are close to zero.D.G. Messerschmitt and C. Szyperski,

Software Ecosystem: Understanding an Indispensable Technology and Industry, MIT

Press, 2003


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