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How to Calculate Variable Cost
03-31-2011, 09:34 PM,
 cloud5 Junior Member Posts: 3 Threads: 2 Joined: Mar 2011 Reputation: 0
How to Calculate Variable Cost
Given a product has sales 75 000 pound and variable cost 45 000 pound. If the sales increased 40 000 pound, how to find the variable cost?
03-31-2011, 10:24 PM,
 basit_namdar Member Posts: 55 Threads: 5 Joined: Jan 2007 Reputation: 0

Ok assuming the variable cost increases at the same rate as revenue i.e. The variable cost per unit remains same than

45000/75000 = 0.6

This means that for each 1 pound sales we incur 0.6 variable cost. Therefore for 105000 sales we will incur 63000 variable cost. This means an excess of 18000 will be incurred for excess sales of 40000 ( 63000-45000 ).
04-02-2011, 12:10 AM,
 cloud5 Junior Member Posts: 3 Threads: 2 Joined: Mar 2011 Reputation: 0

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by basit_namdar</i>
<br />Ok assuming the variable cost increases at the same rate as revenue i.e. The variable cost per unit remains same than

45000/75000 = 0.6

This means that for each 1 pound sales we incur 0.6 variable cost. Therefore for 105000 sales we will incur 63000 variable cost. This means an excess of 18000 will be incurred for excess sales of 40000 ( 63000-45000 ).
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

The question in my book given the sales = 75 000, variable cost = 45 000, fixed cost = 25 000, profit = 5 000. Then the sales increased 40 000. The answer for variable cost is 80 000. How to get the answer?
04-04-2011, 05:58 PM,
 umair_cma Junior Member Posts: 28 Threads: 3 Joined: Jan 2010 Reputation: 0

There are two ways of solving that question first one was illustrated earlier and the second one is to suppose that same contribution margin is received on sales
Sales have been increased and become

Sales 115000
Variable Cost(Bal Fig)
Contribution Margin (75000-45000) 30000
Variable cost is 85000.

I have done everything to produce a answer which is 80000 but i am unable to do so

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