#CALCULATE TOTAL VARIABLE COST HOW TO#

Examples include overhead costs, like rent and utilities, salaried employee payroll and insurance. Calculate your average fixed cost per itemįixed costs are the expenses for a product or service that doesn't change.

#CALCULATE TOTAL VARIABLE COST HOW TO#

Related: How To Calculate Total Revenue 2. Knowing the specific information you want before gathering the details to place in the formula ensures you reach the most appropriate result for your purposes. Other times, you might need the total cost for one particular kind of sales unit. It's useful to calculate total cost for multiple products or services you offer. Decide which product or product line to analyze If you've analyzed your product line and determined that total cost is the right formula for your purposes, you can follow these calculation steps: 1. Related: How To Calculate Average Total Cost How to calculate total cost Knowing this formula can help business owners and leaders think critically about their decisions. For example, if some materials are much more expensive during winter than in the summer, total cost might be a less reliable metric. This is especially true when variable costs change relatively frequently or to a large degree. Sometimes the two components of total cost, fixed and variable costs, encompass multiple complex factors. Many businesses find that total cost is most useful when applied to relatively simple products or services. Leaders also often use this metric to guide pricing decisions because it can help find a price point that consumers are willing to pay while still maximizing profit. External stakeholders often want this information because it can be a factor in supply chain negotiations. Total cost, the sum of average fixed costs and variable costs in a business, can be useful for tracking profits. Related: Total Cost: Definition and Formula Uses for total cost in business They can also use the figure as a basis to further analyze parts of a business that might be more or less profitable. Business owners, managers and financial analysts can use this information to make decisions about prices, purchasing and other factors that affect revenue. The total cost formula is flexible enough to account for a wide variety of product types, which can make it useful in most industries and at most levels.

Total cost = (average fixed cost per unit + average variable cost per unit) x number of units produced These items can range from tangible physical goods, such as cars or housewares, to less physical sales units, such as services or customer contacts. Here's the formula for total cost:

Businesses usually calculate this figure per sales unit and then multiply it by the actual number of items produced.

Total cost is the combined sum of fixed and variable costs. In this article, we discuss what total cost is, describe ways you can use this calculation, provide steps for its calculation and include an example of total cost for a business. Businesses and individuals can then use that information to interpret, analyze and maximize profits. This simple but powerful formula combines fixed costs with variable costs to provide a total dollar amount spent on a venture or a portion of it. Knowing how much an activity or function costs in a business or organization can be an important part of managing expenses and earning consistent profits.

Calculate total variable cost