Average Variable Cost Calculator
Keep your variable costs in check with Calcopolis.
This handy online AVC calculator helps you balance your company's costs by helping you find the average variable cost per unit of your product or service.
In this article, we explain the most fundamental concepts of costs management:
- What are variable costs?
- Why are they so important?
- How can you use this knowledge to expand your business?
What are variable costs?
Variable costs represent all the costs that change with your production volume - for example, materials, transportation costs, electricity, commission fees, piece rate labor, etc.
What does the average variable cost mean?
The average variable cost (AVC) represents the total variable cost per unit of your company's product or service. By determining your AVC value, you could calculate how much your entire company's costs will change if you increase your production volume by X units.
Average variable cost is strictly connected with the average fixed cost of your production. See the AFC calculator for more details.
How to calculate AVC?
The calculation of average variable cost is pretty straightforward.
- Sum up all your variable costs.
- Check out the total quantity of produced units.
- Substitute the values to the AVC formula.
Alternatively, you may use our variable cost per unit calculator, available above the article.
If you wish to calculate the average variable cost, use the following equation:
- TVC - total variable costs of your company
- Q - the quantity of the production or the number of serviced customers.
How can this AVC calculator help you?
Keeping AVC in check helps you better plan and optimize your company's profitability in terms of accounting profit or profit margin.
The AVC value should never exceed the selling price of your goods or services. Moreover, an extra margin should always cover fixed costs and leave room for profit.
For example, if you offered your service for $100, and your initial variable costs had grown from $60 to $100, then your business becomes unprofitable.
Since variable costs are composed of many factors that may vary over time, it is crucial to evaluate them regularly and calculate gross margins whenever they change.
The variable costs should be checked when you prepare a discount policy (see markdown calculator for details).