You Know the Average Total Cost and the Average Variable Cost for a Given Level of Output

Formula to Calculate Average Variable Cost

Average variable cost refers to the variable cost per unit of goods or services. The variable toll is the toll that directly varies with the output and is calculated by dividing the total variable price during the period past the number of units.

The formula is as follows:

Average Variable Cost (AVC)= VC/Q

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For eg:
Source: Average Variable Cost (wallstreetmojo.com)

Where,

• VC is theVariable Cost,
• Q is the quantity of output produced

The AVC can also exist calculated based on the average total toll and the averagefixed price. It is represented as follows,

AVC = ATC – AFC

Where,

• ATC is Average Total Cost
• AFC is Average Stock-still Price

Calculation of Average Variable Cost (Step by Pace)

For calculation of AVC, the steps are every bit follows:

• Step 1: Summate the total variable cost
• Footstep 2:Calculate the quantity of output produced
• Footstep 3: Summate the average variable cost using the equation
• AVC = VC/Q
• Where VC is variable cost and Q is the quantity of output produced

In certain cases, average total costs andaverage fixed costs Average Fixed Cost refers to the company's fixed production expenses per unit of measurement of goods produced. Fixed costs are costs that practise not vary with the corporeality of output produced by the visitor and are independent of the number of goods or services produced past the business organisation. read more are given. In such cases, follow the given steps

• Step ane: Calculate the boilerplate total costs
• Footstep 2: Summate the average fixed costs
• Footstep 3:Calculate the average variable costs using the equation
• AVC = ATC – AFC
• Where ATC is Average Total Cost, and AFC is Average Fixed Toll

Examples

You lot tin can download this Boilerplate Variable Cost Formula Excel Template here – Boilerplate Variable Cost Formula Excel Template

Example #1

The total variable toll of a firm is $50,000 in a twelvemonth. The number of units produced is 10,000. The average total cost is $40, while the average fixed price is $25. Summate the average variable cost.

Solution

Apply below given data for the calculation.

• Variable Cost: $v,000
• Quantity (Q): $10,000
• Average Total Cost (ATC): $40
• Boilerplate Fixed Cost (AFC): $25

The calculation tin can be done as follows-

• = $50000/10000

The calculation can be washed every bit follows:

• = $40 – $25

• The AVC is $15 per unit of measurement.

Instance #2

An Economist in Bradleys Inc. is looking at the cost data of the company. Beginning, calculate the average variable cost for each output level.

Here is the cost information

Output	Total Variable Cost ($)
1	40
2	lxx
three	95
4	110
5	145
vi	200
vii	300

Solution

The AVC is calculated in the following table for each output level using AVC = VC/Q.

The adding can be done as follows-

• =40/i

Similarly, we can calculate the AVC equally follows

Example #3

Georges Inc. has the following price data. Starting time, calculate the boilerplate variable cost for each output level. Also, determine the output level where the average toll is the minimum.

Output	Total Variable Cost ($)
one	50
two	75
three	95
four	110
5	125
6	145
7	175
8	225
9	300
ten	420

Solution

The AVC is calculated in the following table for each output level using AVC = VC/Q.

The adding can be done as follows-

=50/1

• Similarly, we can summate the AVC as follows

The everyman AVC is 24.17 per unit. It corresponds to an output level of 6 units.

Hence, the output at which the average variable toll is the minimum is 6 units.

Example #4

Lincoln Inc. gives yous the followingfinancial information Financial Data refers to the summarized information of budgetary transactions that is helpful to investors in understanding visitor's profitability, their assets, and growth prospects. Financial Information about individuals like past Months Bank Argument, Tax return receipts helps banks to sympathize customer's credit quality, repayment capacity etc. read more . You lot are required to calculate the average variable cost for each output level.

Output	Total Variable Cost ($)
i	five
2	seven
iii	10
4	12
5	14
6	17
7	22
8	30
9	50

Solution:

Step 1: Nosotros take to employ the AVC Formula, i.e., = Variable Cost/Output.

For this purpose, insert =B2/A2 in cell C2.

Stride ii:

Drag from cell C2 up to cell C10

Relevance and Uses

Initially, as output increases, the average variable cost reduces. Once the low point is rInitially, every bit output increases, the average variable cost reduces. One time the depression indicate is reached, the AVC rises with rising output. Hence, the average variable cost curve turns out to exist a U-shaped curve. Information technology implies that it slopes down from left to right so reaches the minimum point. Once information technology reaches the minimum mark, information technology starts rising once again. Therefore, AVC is e'er a positive number. At the minimum risk, the AVC is equal to the marginal cost. Permit u.s. use an illustration to observe out the behavior of the AVC.

Output	Average Variable Cost ($)
1	5000
two	3800
three	3200
4	2750
5	2550
6	2400
7	2500
8	2800
9	3350
x	4300

In the in a higher place illustration, the average variable price is $five,000 per unit if simply 1 unit of measurement is produced. Then it is on a declining trend upward to the production of 6 units. Finally, information technology reaches its lowest bespeak at $2,400 per unit when six units are produced. Then, it is on an increasing tendency, making it a U-shaped curve.

The AVC is used to make decisions regarding when to shut downwardly production in the short run. For instance, a house can continue its product if the price is above AVC and covers some fixed costs. Conversely, a firm would shut downward its production in the short run if the price is less than AVC. Shutting down production volition ensure that additional variable costs are avoided.

Recommended Articles

This article has been a Guide Boilerplate Variable Cost Formula. Hither we discuss the formula to calculate the average variable cost and practical examples and a downloadable excel template. You lot can learn more about accounting and budgeting from the post-obit articles –

• Average Stock-still Cost Formula
• Marginal Benefit
• Formula of Total Variable Cost
• Semi Variable Cost
• Manufacturing Overhead Formula

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Source: https://www.wallstreetmojo.com/average-variable-cost-formula/

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