Variable cost denotes the money your business specifically spends on the development of

goods and services.

You can represent your variable cost two different ways: by total variable cost or
by average variable cost.
Total Variable Cost
Your total variable cost is the sum of the variable cost of each individual product you’ve
developed. You can calculate it with the formula below

Total Variable Cost = Cost to make product x Number of units made

For example, if it costs $60 to make one unit of your product, and you’ve made 20 units,
your total variable cost is $60 x 20, or $1,200.
Average Variable Cost
Your average variable cost uses your total variable cost to determine how much, on
average, it costs to produce one unit of your product. You can calculate it with the
formula below
While total variable cost shows you how much you’re paying to develop every unit of your
product, you might also have to account for products that have different variable costs
per unit. That’s where average variable cost comes in.

For example, if you have 10 units of Product A at a variable cost of $60/unit, and 15 units
of Product B at a variable cost of $30/unit, you have two different variable costs -- $60
and $30. Your average variable cost crunches these two variable costs down to one
manageable figure.

In the above example, you can find your average variable cost by adding the total variable
cost of Product A ($60 x 10 units, or $600) and the total variable cost of Product B ($30 x
15 units, or $450), then dividing this sum by the total number of units produced (10 + 15,
or 25).

Your average variable cost is ($600 + $450) ÷ 25, or $42 per unit.
Variable Cost Examples
So, what’s considered a variable cost to the business?

Depending on the goods or services you develop, you can classify many of your expenses
as variable costs.
 Physical materials: this can include parts, cloth, and even food ingredients required
to make your final product.
 Production equipment: if you automate certain parts of your product’s
development, you might need to invest in more automation equipment or software
as your product line gets bigger.
 Staff wages: The more products you create, the more employees you might need,
and the bigger your payroll.
 Online payment partners: Apps like PayPal typically charge businesses per
transaction so customers can check out purchases through the app. The more
orders your receive, the more you'll pay to the app.
 Packaging and shipping costs: you might pay to package and ship your product by
the unit, and therefore more or fewer shipped units will cause these costs to vary.