The cost of equipment is $350. The materials used in one shirt cost $8 and Gina sell these for $15 each.

What it is:
Variable costs are corporate expenses that vary in direct proportion to the quantity of output. Unlike fixed costs, which remain constant regardless of output, variable costs are a direct function of production volume, rising whenever production expands and falling whenever it contracts. Examples of common variable costs include raw materials, packaging, and labor directly involved in a company's manufacturing process.

The formula for calculating total variable cost is:

Total Variable Cost = Total Quantity of Output * Variable Cost Per Unit of Output

The term variable cost is not to be confused with variable costing, which is an accounting method related to reporting variable costs.

How it Works/Example:
Let's assume XYZ Company has received an order for 5,000 widgets for a total sales price of $5,000 and wants to determine the gross profit that will be generated by completing the order. First, the variable costs per widget must be determined.

Let's assume the following:

Annual Widgets Produced - 100,000
Raw Materials Costs - $10,000
Direct Labor Costs - $50,000

From this information, we can conclude that each widget costs 10 cents ($10,000/100,000 widgets) in raw materials and 50 cents ($50,000/100,000 widgets) in direct labor costs. Using the formula above, we can calculate that XYZ Company's total variable cost on the order is:

5,000 * ($0.10 + $0.50) = $3,000

Therefore, the company can reasonably expect to earn a $2,000 gross profit ($5,000 - $3,000) from the order.

The cost of rent is 2000 and its fixed input is 100 pieces. The cost of raw materials is 0.50 per unit of that direct labor is 1.50 per unit.

Price quality purchased TR TVC TC Profit
10.50 10000?

well you times the variable cost by the total output