# Variable Cost

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### Slide1:

Variable Cost https://store.theartofservice.com/the-variable-cost-toolkit.html

### Economies of scale:

Economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to size, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. Often operational efficiency is also greater with increasing scale, leading to lower variable cost as well. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Data center Green datacenters:

Data center Green datacenters Datacenters in arctic locations where outside air provides all cooling are getting more popular as cooling and electricity are the two main variable cost components. https://store.theartofservice.com/the-variable-cost-toolkit.html

Small business Problems faced by small businesses In addition to ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin (sales minus variable costs) https://store.theartofservice.com/the-variable-cost-toolkit.html

### Scalability:

Scalability The concept of scalability is desirable in technology as well as business settings. The base concept is consistent – the ability for a business or technology to accept increased volume without impacting the contribution margin (= revenue − variable costs). For example, a given piece of equipment may have capacity from 1–1000 users, and beyond 1000 users, additional equipment is needed or performance will decline (variable costs will increase and reduce contribution margin). https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost accounting Origins:

Cost accounting Origins In the early industrial age, most of the costs incurred by a business were what modern accountants call "variable costs" because they varied directly with the amount of production. Money was spent on labor, raw materials, power to run a factory, etc. in direct proportion to production. Managers could simply total the variable costs for a product and use this as a rough guide for decision-making processes. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost accounting Origins:

Cost accounting Origins However, with the growth of railroads, steel and large scale manufacturing, by the late nineteenth century these costs were often more important than the variable cost of a product, and allocating them to a broad range of products lead to bad decision making https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost accounting Marginal costing:

Cost accounting Marginal costing A relationship between the cost, volume and profit is the contribution margin. The contribution margin is the revenue excess from sales over variable costs. The concept of contribution margin is particularly useful in the planning of business because it gives an insight into the potential profits that can generate a business. The following chart shows the income statement of a company X, which has been prepared to show its contribution margin: https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost accounting Marginal costing:

Cost accounting Marginal costing Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio. Thus, in the above income statement, the variable costs are 60% (100% - 40%) of sales, or $648,000 ($1'080,000 X 60%). The total contribution margin $432,000, can also be computed directly by multiplying the sales by the contribution margin ratio ($1'080,000 X 40%). https://store.theartofservice.com/the-variable-cost-toolkit.html

### Inventory Theory of constraints cost accounting:

Inventory Theory of constraints cost accounting Throughput accounting recognizes only one class of variable costs: the truly variable costs, like materials and components, which vary directly with the quantity produced https://store.theartofservice.com/the-variable-cost-toolkit.html

### Automotive engineering - Product Engineering:

Automotive engineering - Product Engineering Cost: The cost of a vehicle program is typically split into the effect on the variable cost of the vehicle, and the up-front tooling and fixed costs associated with developing the vehicle. There are also costs associated with warranty reductions, and marketing. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Revenue - Financial statement analysis:

Revenue - Financial statement analysis Gross Margin is a calculation of revenue less cost of goods sold, and is used to determine how well sales cover direct variable costs relating to the production of goods. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Pricing - Elements of pricing:

Pricing - Elements of pricing The price floor is determined by production factors like costs (often only variable costs are taken into account), economies of scale, marginal cost, and degree of operating leverage https://store.theartofservice.com/the-variable-cost-toolkit.html

### Monopoly - Sources of monopoly power:

Monopoly - Sources of monopoly power In addition to barriers to entry and competition, barriers to exit may be a source of market power. Barriers to exit are market conditions that make it difficult or expensive for a company to end its involvement with a market. Great liquidation costs are a primary barrier for exiting. Market exit and shutdown are separate events. The decision whether to shut down or operate is not affected by exit barriers. A company will shut down if price falls below minimum average variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Monopoly - Monopolist shutdown rule:

Monopoly - Monopolist shutdown rule A monopolist should shut down when price is less than average variable cost for every output level. – in other words where the demand curve is entirely below the average variable cost curve. Under these circumstances at the profit maximum level of output (MR = MC) average revenue would be less than average variable costs and the monopolists would be better off shutting down in the short term. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Recruitment process outsourcing - Benefits :

Recruitment process outsourcing - Benefits RPO solutions are also claimed to change fixed investment costs into variable costs that flex with fluctuation in recruitment activity https://store.theartofservice.com/the-variable-cost-toolkit.html

### Business process outsourcing - Benefits and limitations :

Business process outsourcing - Benefits and limitations 21, pp 7–15 A variable cost structure helps a company responding to changes in required capacity and does not require a company to invest in assets, thereby making the company more flexible.Gilley, K.M., Rasheed, A https://store.theartofservice.com/the-variable-cost-toolkit.html

Pandora Radio - Business model High variable costs mean that Pandora does not have significant operating leverage, and in the next couple years might actually have negative operating leverage due to an unfavorable shift in product mix towards mobile https://store.theartofservice.com/the-variable-cost-toolkit.html

### Scalable:

Scalable The concept of scalability is desirable in technology as well as business settings. The base concept is consistent – the ability for a business or technology to accept increased volume without impacting the contribution margin (= revenue minus; variable costs). For example, a given piece of equipment may have capacity from 1–1000 users, and beyond 1000 users, additional equipment is needed or performance will decline (variable costs will increase and reduce contribution margin). https://store.theartofservice.com/the-variable-cost-toolkit.html

### Demand response - Electricity pricing:

Demand response - Electricity pricing In virtually all power systems electricity is produced by generators that are dispatched in merit order, i.e., generators with the lowest marginal cost (lowest variable cost of production) are used first, followed by the next cheapest, etc., until the instantaneous electricity demand is satisfied https://store.theartofservice.com/the-variable-cost-toolkit.html

### Wheat - Diseases:

Wheat - Diseases Fungicides, used to prevent the significant crop losses from fungal disease, can be a significant variable cost in wheat production https://store.theartofservice.com/the-variable-cost-toolkit.html

### Biomass briquettes - Cofiring:

Biomass briquettes - Cofiring The process is primarily used to decrease CO2 emissions despite the resulting lower energy efficiency and higher variable cost https://store.theartofservice.com/the-variable-cost-toolkit.html

Business efficiency The 'efficiency ratio', a ratio that typically applies to banks, in simple terms is defined as expenses as a percentage of revenue ('expenses / revenue'), with a few variations. A lower percentage is better since that means expenses are low and earnings are high. It relates to operating leverage, which measures the ratio between fixed costs and variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Economy of scale:

Economy of scale In microeconomics, 'economies of scale' are the cost advantages that enterprises obtain due to size, throughput, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. Often operational efficiency is also greater with increasing scale, leading to lower variable cost as well. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Strategic sourcing - Cooperative sourcing :

Strategic sourcing - Cooperative sourcing This is especially common in IT-oriented industries due to low to no variable costs, e.g https://store.theartofservice.com/the-variable-cost-toolkit.html

### Premium-rate telephone number - Telephone numbers in Spain|Spain:

Premium-rate telephone number - Telephone numbers in Spain|Spain Also there are other range for information services (weather, white pages, etc...), there are all the numbers starting with 118, they can have 5 or 6 digits with a variable cost per number. 11818 is free from Telefónica's telephone cabins. Previously 11818 was 1003. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Financial management for IT services - IT accounting:

Financial management for IT services - IT accounting Variable Costs: Any expenses that vary in the short-term based on the level of services provided, resources consumed, or other factors. For example, energy costs are variable based on the amount consumed. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Gasoline gallon equivalent - Miles per gallon of gasoline equivalent (MPGe):

Gasoline gallon equivalent - Miles per gallon of gasoline equivalent (MPGe) Charts on this page show variable costs of electricity for the BTU equivalent of a Gallon of Gasoline at select local retail prices. That does not address the relative thermal efficiency of an electric traction motor (80% to 99%) vs the thermal efficiency of an internal combustion engine (15% to 25%). This is a significant difference. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Water supply - Costs and financing :

Water supply - Costs and financing The cost of supplying water consists to a very large extent of fixed costs (capital costs and personnel costs) and only to a small extent of variable costs that depend on the amount of water consumed (mainly energy and chemicals) https://store.theartofservice.com/the-variable-cost-toolkit.html

### Money laundering - Methods:

Money laundering - Methods * Cash-intensive businesses: In this method, a business typically involved in receiving cash uses its accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Service businesses are best suited to this method, as such businesses have no variable costs, and it is hard to detect discrepancies between revenues and costs. Examples are parking buildings, strip clubs, tanning beds, and casinos. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Learning curve - Examples and mathematical modelling :

Learning curve - Examples and mathematical modelling :This form of learning curve is used extensively in industry for cost projections.http://classweb.gmu.edu/aloerch/LearningCurve%20Basics.pdf Department of Defense Manual Number 5000.2-M, mandates the use of learning curves for costing of defense programs (variable costs of production) https://store.theartofservice.com/the-variable-cost-toolkit.html

Lifetime value - Construction The CLV model has only three parameters: (1) constant margin (contribution after deducting variable costs including retention spending) per period, (2) constant retention probability per period, and (3) discount rate. Furthermore, the model assumes that in the event that the customer is not retained, they are lost for good. Finally, the model assumes that the first margin will be received (with probability equal to the retention rate) at the end of the first period. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Theory of constraints - Finance and accounting:

Theory of constraints - Finance and accounting The primary measures for a TOC view of finance and accounting are: throughput, operating expense and investment. Throughput is calculated from sales minus totally variable cost, where totally variable cost is usually calculated as the cost of raw materials that go into creating the item sold. https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis:

CVP analysis CVP analysis expands the use of information provided by breakeven analysis. A critical part of CVP analysis is the point where total revenues equal total costs (both fixed and variable costs). At this break-even point, a company will experience no income or loss. This break-even point can be an initial examination that precedes more detailed CVP analysis. https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis:

CVP analysis * Variable cost per unit https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis - Assumptions:

CVP analysis - Assumptions * Constant variable cost per unit; https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis - Assumptions:

CVP analysis - Assumptions * contribution stands for sales minus variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis - Assumptions:

CVP analysis - Assumptions Therefore it gives us the profit added per unit of variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis - Basic graph:

CVP analysis - Basic graph * 'V' = 'Unit variable cost' ('variable cost per unit') https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis - Break down:

CVP analysis - Break down One can decompose total costs as fixed costs plus variable costs: https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis - Break down:

CVP analysis - Break down Following a matching principle of matching a portion of sales against variable costs, one can decompose sales as Contribution margin|contribution plus variable costs, where 'contribution' is what's left after deducting variable costs. One can think of contribution as the marginal contribution of a unit to the profit, or contribution towards offsetting fixed costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis - Break down:

CVP analysis - Break down Subtracting variable costs from both costs and sales yields the simplified diagram and equation for profit and loss. https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis - Break down:

CVP analysis - Break down Mathematically, the contribution graph is obtained from the sales graph by a shear mapping|shear, to be precise \left(\begin1 0\\ -V 1\end\right), where V are unit variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### CVP analysis - Limitations:

CVP analysis - Limitations CVP is a 'short run', 'marginal' analysis: it assumes that unit variable costs and unit revenues are constant, which is appropriate for small deviations from current production and sales, and assumes a neat division between fixed costs and variable costs, though in the long run all costs are variable https://store.theartofservice.com/the-variable-cost-toolkit.html

### Fixed cost:

Fixed cost In economics, 'fixed costs', 'indirect costs' or 'overheads' are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month, and are often referred to as overhead costs. This is in contrast to variable costs, which are volume-related (and are paid per quantity produced). https://store.theartofservice.com/the-variable-cost-toolkit.html

### Fixed cost - Areas of confusion :

Fixed cost - Areas of confusion In business planning and management accounting, usage of the terms fixed costs, variable costs and others will often differ from usage in economics, and may depend on the context. Some cost accounting practices such as activity-based costing will allocate fixed costs to business activities for profitability measures. This can simplify decision-making, but can be confusing and controversial. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Fixed cost - Areas of confusion :

Fixed cost - Areas of confusion In accounting terminology, fixed costs will broadly include almost all costs (expenses) which are not included in cost of goods sold, and variable costs are those captured in costs of goods sold https://store.theartofservice.com/the-variable-cost-toolkit.html

### Community-supported agriculture - Distribution and marketing methods:

Community-supported agriculture - Distribution and marketing methods Share prices are mostly determined by overhead costs of production, but are also determined by share prices of other CSAs, variable costs of production, market forces, and income level of the community https://store.theartofservice.com/the-variable-cost-toolkit.html

### Proletariat - Usage in Marxist theory :

Proletariat - Usage in Marxist theory One part of the wealth produced is used to pay the workers' wages (variable costs), another part to renew the means of production (constant costs) while the third part, surplus value is split between the capitalist's private takings (profit), and the money used to pay rents, taxes, interests, etc https://store.theartofservice.com/the-variable-cost-toolkit.html

### Budget management - Classification of costs:

Budget management - Classification of costs # By Behavior: fixed, variable, semi-variable. Costs are classified according to their behavior in relation to change in relation to production volume within given period of time. Fixed Costs remain fixed irrespective of changes in the production volume in given period of time. Variable costs change according to volume of production. Semi-variable Costs costs are partly fixed and partly variable. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Alfred Marshall - Principles of Economics (1890):

Alfred Marshall - Principles of Economics (1890) Marshall pointed out that it is the prime or variable costs, which constantly recur, that influence the sale price most in this period https://store.theartofservice.com/the-variable-cost-toolkit.html

### Abuse of dominance - Monopolist shutdown rule:

Abuse of dominance - Monopolist shutdown rule A monopolist should shut down when price is less than average variable cost for every output level – in other words where the demand curve is entirely below the average variable cost curve. Under these circumstances at the profit maximum level of output (MR = MC) average revenue would be less than average variable costs and the monopolists would be better off shutting down in the short term. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Marginal cost - Cost functions and relationship to average cost:

Marginal cost - Cost functions and relationship to average cost In the simplest case, the total cost function and its derivative are expressed as follows, where Q represents the production quantity, VC represents variable costs, FC represents fixed costs and TC represents total costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Marginal cost - Perfectly competitive supply curve:

Marginal cost - Perfectly competitive supply curve The portion of the marginal cost curve above its intersection with the average variable cost curve is the supply curve for a firm operating in a perfect competition|perfectly competitive market https://store.theartofservice.com/the-variable-cost-toolkit.html

### Marginal cost - Relationship to fixed costs:

Marginal cost - Relationship to fixed costs This can be illustrated by graphing the short run total cost curve and the short run variable cost curve https://store.theartofservice.com/the-variable-cost-toolkit.html

### Perfect competition - The shutdown point:

Perfect competition - The shutdown point In the short run, a firm operating at a loss [R R then the firm is not even covering its production costs and it should immediately shut down. The rule is conventionally stated in terms of price (average revenue) and average variable costs. The rules are equivalent (If you divide both sides of inequality TR VC the firm should shut down. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Perfect competition - Short-run supply curve:

Perfect competition - Short-run supply curve Technically the SR supply curve is a discontinuous function composed of the segment of the MC curve at and above minimum of the average variable cost curve and a segment that runs with the vertical axis from the origin to but not including a point parallel to minimum average variable costs.Binger Hoffman, Microeconomics with Calculus, 2nd ed https://store.theartofservice.com/the-variable-cost-toolkit.html

### Predatory pricing - Concept:

Predatory pricing - Concept There are various tests to assess whether the pricing is predatory: Areeda-Turner suggest it is below Short Run Marginal Costs, the AKZO case suggests it is costing below Average Variable Costs, and the case of United Brands suggests it is simply when the difference in cost between the cost of manufacturing and the price charged to consumers is excessive https://store.theartofservice.com/the-variable-cost-toolkit.html

### Long run - Short run:

Long run - Short run Costs that are fixed, say from existing plant size, have no impact on a firm's short-run decisions, since only variable costs and revenues affect short-run profits https://store.theartofservice.com/the-variable-cost-toolkit.html

### Long run - Short run:

Long run - Short run * continue producing if average variable cost is less than price per unit, even if average total cost is greater than price; https://store.theartofservice.com/the-variable-cost-toolkit.html

### Long run - Short run:

Long run - Short run * shut down if average variable cost is greater than price at each level of output. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Throughput accounting - History :

Throughput accounting - History When cost accounting was developed in the 1890s, labor was the largest fraction of product cost and could be considered a variable cost https://store.theartofservice.com/the-variable-cost-toolkit.html

### Throughput accounting - The concepts of Throughput Accounting :

Throughput accounting - The concepts of Throughput Accounting (Throughput is sometimes referred to as throughput contribution and has similarities to the concept of contribution in marginal costing which is sales revenues less variable costs – variable being defined according to the marginal costing philosophy.) https://store.theartofservice.com/the-variable-cost-toolkit.html

### Throughput accounting - The concepts of Throughput Accounting :

Throughput accounting - The concepts of Throughput Accounting * Investment (I) is the money tied up in the system. This is money associated with inventory, machinery, buildings, and other assets and liabilities. In earlier Theory of Constraints (TOC) documentation, the I was interchanged between inventory and investment. The preferred term is now only investment. Note that TOC recommends inventory be valued strictly on totally variable cost associated with creating the inventory, not with additional cost allocations from overhead. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Load shedding - Electricity pricing:

Load shedding - Electricity pricing In virtually all power systems electricity is produced by generators that are dispatched in merit order, i.e., generators with the lowest marginal cost (lowest variable cost of production) are used first, followed by the next cheapest, etc., until the instantaneous electricity demand is satisfied https://store.theartofservice.com/the-variable-cost-toolkit.html

### Price elasticity of demand - Limitations of revenue-maximizing and profit-maximizing pricing strategies:

Price elasticity of demand - Limitations of revenue-maximizing and profit-maximizing pricing strategies In most situations, revenue-maximizing prices are not profit-maximizing prices. For example, if variable costs per unit are nonzero (which they almost always are), then a more complex computation of a similar kind yields prices that generate optimal profits. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Marginal product of labour - Marginal costs:

Marginal product of labour - Marginal costs Thus only variable costs change as output increases ∆C = ∆VC = ∆Lw https://store.theartofservice.com/the-variable-cost-toolkit.html

### Profit model - Basic model:

Profit model - Basic model : w is variable costs per unit sold https://store.theartofservice.com/the-variable-cost-toolkit.html

### Profit model - Model extensions :

Profit model - Model extensions The basic profit model is sales minus costs. Sales are made up of quantity sold multiplied by their price. Costs are usually divided between Fixed costs and variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Profit model - Model extensions :

Profit model - Model extensions Notice that w (average unit production cost) includes the fixed and variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Profit model - Production costs :

Profit model - Production costs The unit production costs (w) can be separated into fixed and variable costs: https://store.theartofservice.com/the-variable-cost-toolkit.html

### Profit model - Production costs :

Profit model - Production costs * v = variable costs per unit; https://store.theartofservice.com/the-variable-cost-toolkit.html

### Profit model - Variable-cost elements :

Profit model - Variable-cost elements Thus the variable cost v * q can now be elaborated into: https://store.theartofservice.com/the-variable-cost-toolkit.html

### Operating margin:

Operating margin It is a measurement of what proportion of a company's revenue is left over, before taxes and other indirect costs (such as rent, bonus, interest, etc.), after paying for variable costs of production as wages, raw materials, etc. A good operating margin is needed for a company to be able to pay for its fixed costs, such as interest on debt. A higher operating margin means that the company has less financial risk. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Flu - Society and culture :

Flu - Society and culture Influenza produces variable cost|direct costs due to lost productivity and associated medical treatment, as well as indirect costs of preventative measures https://store.theartofservice.com/the-variable-cost-toolkit.html

### Electricity sector in Peru - Installed capacity :

Electricity sector in Peru - Installed capacity In 2006, 72% of Peru’s total electricity generation came from hydroelectric plants (total generation was 27.4 TWh), with conventional thermal plants only in operation during peak load periods or when hydroelectric output is curtailed by weather events.[http://www.eia.doe.gov/emeu/cabs/Peru/Electricity.html EIA] This “underuse” of the country’s thermal capacity is due to the high variable costs of thermal generation https://store.theartofservice.com/the-variable-cost-toolkit.html

### Price discrimination - Two necessary conditions for price discrimination:

Price discrimination - Two necessary conditions for price discrimination (Wiley 2003) Airlines typically attempt to maximize revenue rather than profits because airlines variable costs are small https://store.theartofservice.com/the-variable-cost-toolkit.html

### Third party logistics - Advantages and disadvantages of third party logistics:

Third party logistics - Advantages and disadvantages of third party logistics Third party logistics provider can provide a much higher flexibility in geographic aspects and can offer a much larger variety of services than the clients could provider their selves. In addition to that, the client gets flexibility in resources and workforce size and logistics fix costs turn into variable costs.Simchi-Levi and Kaminsky, Designing and Managing the Supply Chain: Concepts,Strategies and Case Studies, third edition, McGraw-Hill International Edition, page 251 https://store.theartofservice.com/the-variable-cost-toolkit.html

Markup (business) The total cost reflects the total amount of both Fixed cost|fixed and Variable cost|variable expenses to produce and distribute a Product (business)|product https://store.theartofservice.com/the-variable-cost-toolkit.html

### Everyday low price - Concept:

Everyday low price - Concept Hi-Lo strategies generally result in lower variable costs, since promotional retailers can move more products by offering discounts https://store.theartofservice.com/the-variable-cost-toolkit.html

### Economic cost - Components of Economic Costs :

Economic cost - Components of Economic Costs **Variable cost (TVC): Variable costs are the costs paid to the variable input. Inputs include labour, capital, materials, power and land and buildings. Variable inputs are inputs whose use vary with output. Conventionally the variable input is assumed to be labor. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Economic cost - Components of Economic Costs :

Economic cost - Components of Economic Costs **Average variable cost (AVC) = variable costs divided by output. AVC =T VC/q. The average variable cost curve is typically U-shaped. It lies below the average cost curve and generally has the same shape - the vertical distance between the average cost curve and average variable cost curve equals average fixed costs. The curve normally starts to the right of the y axis because with zero production https://store.theartofservice.com/the-variable-cost-toolkit.html

### Yield management - Use by industry:

Yield management - Use by industry The less variable cost there is, the more the additional revenue earned will contribute to the overall profit https://store.theartofservice.com/the-variable-cost-toolkit.html

### Absorption costing:

Absorption costing A costing method that includes all manufacturing costs—direct materials, direct labour, and both variable and fixed manufacturing overhead—in unit product costs. According to the ICMA London Absorption costing is a principle whereby fixed as well as variable costs are allocated to cost unit the term may be applied where production costs only or costs of all function are so allocated. https://store.theartofservice.com/the-variable-cost-toolkit.html

### BahnCard - Motivation:

BahnCard - Motivation The card allowed a two-dimensional pricing schedule, which consists of card price (a fixed cost), and ticket price (a variable cost). Once a passenger has bought a card, its price becomes a sunk cost and this makes the train more like the automobile, which is also characterised by high fixed costs. The decision whether to take a car or train for a particular journey depends mostly on the Marginal cost|marginal price per kilometer, not on the total cost. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost management - Origins:

Cost management - Origins In the early industrial age, most of the costs incurred by a business were what modern accountants call variable costs because they varied directly with the amount of production. Money was spent on labor, raw materials, power to run a factory, etc. in direct proportion to production. Managers could simply total the variable costs for a product and use this as a rough guide for decision-making processes. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost management - Origins:

Cost management - Origins Some costs tend to remain the same even during busy periods, unlike variable costs, which rise and fall with volume of work. Over time, these fixed costs have become more important to managers. Examples of fixed costs include the depreciation of plant and equipment, and the cost of departments such as maintenance, tooling, production control, purchasing, quality control, storage and handling, plant supervision and engineering.Performance management, Paper f5. Kapalan publishing UK. Pg 3 https://store.theartofservice.com/the-variable-cost-toolkit.html

### Total cost:

Total cost In economics, and cost accounting, 'total cost' ('TC') describes the total economic cost of production and is made up of variable costs, which vary according to the quantity of a good produced and include inputs such as labor and raw materials, plus fixed costs, which are independent of the quantity of a good produced and include inputs (Capital (economics)|capital) that cannot be varied in the short term, such as buildings and machinery. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Total cost:

Total cost Total cost in economics includes the total opportunity cost of each factor of production as part of its fixed or variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Total cost:

Total cost The rate at which total cost changes as the amount produced changes is called marginal cost. This is also known as the marginal unit variable cost. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Total cost:

Total cost If one assumes that the unit variable cost is constant, as in cost-volume-profit analysis developed and used in cost accounting by the accountants, then total cost is linear in volume, and given by: total cost = fixed costs + unit variable cost * amount. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Total cost:

Total cost Consequently total cost is fixed costs (FC) plus variable cost (VC) or TC = FC + VC = Kr +wL. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Total cost:

Total cost Other economic models have the total variable cost curve (and therefore total cost curve) illustrate the concepts of increasing, and later diminishing, marginal returns. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Variable cost:

Variable cost Variable costs are sometimes called unit-level costs as they vary with the number of units produced. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Variable cost - Example 1:

Variable cost - Example 1 Assume a business produces clothing. A variable cost of this product would be the direct material, i.e., cloth, and the direct labor. If it takes one laborer 6 yards of cloth and 8 hours to make a shirt, then the cost of labor and cloth increases if two shirts are produced. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Variable cost - Example 2:

Variable cost - Example 2 For example, a firm pays for raw materials. When activity is decreased, less raw material is used, and so the spending for raw materials falls. When activity is increased, more raw material is used, and spending therefore rises. Note that the changes in expenses happen with little or no need for managerial intervention. These costs are variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Variable cost - Example 2:

Variable cost - Example 2 In retail the cost of goods is almost entirely a variable cost; this is not true of manufacturing where many fixed costs, such as depreciation, are included in the cost of goods. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Variable cost - Example 2:

Variable cost - Example 2 Although taxation usually varies with profit, which in turn varies with sales volume, it is not normally considered a variable cost. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Variable cost - Example 2:

Variable cost - Example 2 For some employees, salary is paid on monthly rates, independent of how many hours the employees work. This is a fixed cost. On the other hand, the hours of hourly employees can often be varied, so this type of labour cost is a variable cost. The cost of material is a variable cost. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Even aged timber management - Economic Implications:

Even aged timber management - Economic Implications Forestry operations have extremely high variable costs- per hour expenses for harvesting equipment and per kilometer expenses for log transportation compose a very large portion of the total cost to harvest a stand https://store.theartofservice.com/the-variable-cost-toolkit.html

### Operational costs - Business operating costs :

Operational costs - Business operating costs Variable Costs include indirect overhead costs such as Cell Phone Services, Computer Supplies, Credit Card Processing, Electrical use, Express Mail, Janitorial Supplies, MRO, Office Products, Payroll Services,Telecom, Uniforms, Utilities, or Waste Disposal etc. https://store.theartofservice.com/the-variable-cost-toolkit.html

No-load - United States Variable costs are fixed on a percentage basis https://store.theartofservice.com/the-variable-cost-toolkit.html

### Capitalization rate - Explanatory Examples:

Capitalization rate - Explanatory Examples For example, if a building is purchased for $1,000,000 sale price and it produces$100,000 in positive net operating income (the amount left over after fixed costs and variable costs is subtracted from gross lease income) during one year, then: https://store.theartofservice.com/the-variable-cost-toolkit.html

### Sliding scale:

Sliding scale 'Sliding scale fees' are variable costs for products, services, or taxes based on one's ability to pay. Such fees are thereby reduced for those who have lower incomes or less money to spare after their personal expenses, regardless of income. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Five and dime - Supply:

Five and dime - Supply In many countries, stock can be imported from others with lower variable costs, because of differences in wages, resource costs or taxation. Usually goods are imported by a general importer, then sold to the stores wholesale. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Contribution margin:

Contribution margin “Contribution” represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs https://store.theartofservice.com/the-variable-cost-toolkit.html

### Contribution margin - Purpose:

Contribution margin - Purpose The contribution margin is computed by using a contribution income statement, a management accounting version of the income statement that has been reformatted to group together a business's fixed and variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Contribution margin - Purpose:

Contribution margin - Purpose Contribution is different from gross margin in that a contribution calculation seeks to separate out variable costs (included in the contribution calculation) from fixed costs (not included in the contribution calculation) on the basis of economic analysis of the nature of the expense, whereas gross margin is determined using accounting standards https://store.theartofservice.com/the-variable-cost-toolkit.html

### Contribution margin - Construction:

Contribution margin - Construction The 'Unit Contribution Margin' (C) is Unit Revenue (Price, P) minus Unit Variable Cost (V): https://store.theartofservice.com/the-variable-cost-toolkit.html

### Contribution margin - Construction:

Contribution margin - Construction where TC = TFC + TVC is Total Cost = Total Fixed Cost + Total Variable Cost and X is Number of Units. Thus Profit is Unit Contribution times Number of Units, minus the Total Fixed Costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Contribution margin - Construction:

Contribution margin - Construction From the perspective of the matching principle, one breaks down the revenue from a given sale into a part to cover the Unit Variable Cost, and a part to offset against the Total Fixed Costs. Breaking down Total Costs as: https://store.theartofservice.com/the-variable-cost-toolkit.html

### Contribution margin - Construction:

Contribution margin - Construction Thus the Total Variable Costs \text = \text \times \text offset, and the Net Income (Profit and Loss) is Total Contribution Margin minus Total Fixed Costs: https://store.theartofservice.com/the-variable-cost-toolkit.html

### Contribution margin - Examples:

Contribution margin - Examples Although this shows only the top half of the contribution format income statement, it's immediately apparent that Product Line C is Beta's most profitable one, even though Beta gets more sales revenue from Line B (which is also an example of what is called Partial Contribution Margin - an income statement that references only variable costs) https://store.theartofservice.com/the-variable-cost-toolkit.html

### Contribution margin - Contribution margin as a measure of efficiency in the operating room:

Contribution margin - Contribution margin as a measure of efficiency in the operating room A surgical suite can schedule itself efficiently but fail to have a positive contribution margin if many surgeons are slow, use too many instruments or expensive implants, etc. These are all measured by the contribution margin per OR hr. The contribution margin per hour of OR time is the hospital revenue generated by a surgical case, less all the hospitalization variable labor and supply costs. Variable costs, such as implants, vary directly with the volume of cases performed. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost driver:

Cost driver Generally, the cost driver for short term indirect variable costs may be the volume of output/activity; but for long term indirect variable costs, the cost drivers will not be related to volume of output/activity. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost curve - Short-run average variable cost curve (SRAVC):

Cost curve - Short-run average variable cost curve (SRAVC) Average variable cost (which is a short-run concept) is the variable cost (typically labor cost) per unit of output: SRAVC = wL / Q where w is the wage rate, L is the quantity of labor used, and Q is the quantity of output produced. The SRAVC curve plots the short-run average variable cost against the level of output and is typically drawn as U-shaped. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost curve - Short-run average total cost curve (SRATC or SRAC):

Cost curve - Short-run average total cost curve (SRATC or SRAC) Short run average cost equals average fixed costs plus average variable costs. Average fixed cost continuously falls as production increases in the short run, because K is fixed in the short run. The shape of the average variable cost curve is directly determined by increasing and then diminishing marginal returns to the variable input (conventionally labor).Perloff, J., 2008, Microeconomics: Theory Applications with Calculus, Pearson. ISBN 978-0-321-27794-7 https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost curve - Long-run average cost curve (LRAC):

Cost curve - Long-run average cost curve (LRAC) Natural monopolies tend to exist in industries with high capital costs in relation to variable costs, such as water supply and electricity supply. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost curve - Short-run marginal cost curve (SRMC):

Cost curve - Short-run marginal cost curve (SRMC) The marginal cost curve intersects both the average variable cost curve and (short-run) average total cost curve at their minimum points https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost curve - Cost curves and production functions:

Cost curve - Cost curves and production functions Because the production function determines the variable cost function it necessarily determines the shape and properties of marginal cost curve and the average cost curves. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost curve - Relationship between different curves:

Cost curve - Relationship between different curves *Marginal Cost (MC) = dC/dQ; MC equals the slope of the total cost function and of the variable cost function https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost curve - Relationship between different curves:

Cost curve - Relationship between different curves ** At a level of Q at which the MC curve is above the average total cost or average variable cost curve, the latter curve is rising. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost curve - Relationship between different curves:

Cost curve - Relationship between different curves ** If MC is below average total cost or average variable cost, then the latter curve is falling. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Cost curve - Relationship between different curves:

Cost curve - Relationship between different curves ** If MC equals average variable cost, then average variable cost is at its minimum value. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Semi variable cost:

Semi variable cost Calculate variable cost per unit https://store.theartofservice.com/the-variable-cost-toolkit.html

### Semi variable cost:

Semi variable cost Put back into highest total cost and rework variable cost to the output, leaving fixed cost. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Semi variable cost - General form of semi-variable cost:

Semi variable cost - General form of semi-variable cost * b = The variable cost per unit https://store.theartofservice.com/the-variable-cost-toolkit.html

### Semi variable cost - General form of semi-variable cost:

Semi variable cost - General form of semi-variable cost The equation makes it very easy to calculate what the total mixed cost or an unknown factor(fixed cost/variable cost/level of activity) https://store.theartofservice.com/the-variable-cost-toolkit.html

### Monopolistic - Sources of monopoly power:

Monopolistic - Sources of monopoly power In addition to barriers to entry and competition, barriers to exit may be a source of market power. Barriers to exit are market conditions that make it difficult or expensive for a company to end its involvement with a market. Great liquidation costs are a primary barrier for exiting. Market exit and shutdown are separate events. The decision whether to shut down or operate is not affected by exit barriers. A company will shut down if price falls below minimum average variable costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### 2011–12 FC Barcelona season - July:

2011–12 FC Barcelona season - July On 21 July, Barcelona completed the transfer of Chile national football team|Chilean Midfielder#Winger|winger Alexis Sánchez from Italy|Italian club Udinese Calcio|Udinese. The deal is for 5 years and the cost of the transfer is €26 million with variable cost of €11.5 million. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Product Cycle - Pyramid of Production Systems:

Product Cycle - Pyramid of Production Systems * cost which can be measured in terms of monetary units and usually consists of fixed and variable cost. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Unit cost:

Unit cost The 'unit cost' is the cost incurred by a company to produce, store and sell one unit of a particular product. Unit costs include all fixed costs and all variable costs involved in production.http://www.investopedia.com/terms/u/unitcost.asp#axzz27lgOiykz https://store.theartofservice.com/the-variable-cost-toolkit.html

### Water supplies - Costs and financing :

Water supplies - Costs and financing The cost of supplying water consists, to a very large extent, of fixed costs (capital costs and personnel costs) and only to a small extent of variable costs that depend on the amount of water consumed (mainly energy and chemicals) https://store.theartofservice.com/the-variable-cost-toolkit.html

### Kent State University at Stark - Senior Guest Program:

Kent State University at Stark - Senior Guest Program Courses taken through the Senior Guest Program are free, however, some classes have variable costs such as books or special course fees https://store.theartofservice.com/the-variable-cost-toolkit.html

### Variable Costing:

Variable Costing This artificially inflates profits in the period of production by incurring less cost than would be incurred under a variable costing system.http://www-biz.aum.edu/janheier/ABSORB2020.htm ABSORPTION VS VARIABLE COSTING LECTURE - BREAKEVEN ANALYSIS Variable costing is generally not used for external reporting purposes https://store.theartofservice.com/the-variable-cost-toolkit.html

### Variable Costing:

Variable Costing 'Variable costing' - A costing method that includes only variable manufacturing costs--direct materials, direct labor, and variable manufacturing overhead--in unit product costs. https://store.theartofservice.com/the-variable-cost-toolkit.html

### Pay on production - History and BackgroundMast, Wolfgang F.: Pay on Production : langfristige Partnerschaft mit Verantwortungstransfer. In: Meier, Horst (Hrsg.): Dienstleistungsorientierte Geschäftsmodelle im Maschinen- und Anlagenbau : vom Basisangebot bis zum Betreibermodell. Berlin: Springer, 2004. - ISBN 3-540-40816-9. P. 15-29. :

Pay on production - History and BackgroundMast, Wolfgang F.: Pay on Production : langfristige Partnerschaft mit Verantwortungstransfer. In: Meier, Horst (Hrsg.): Dienstleistungsorientierte Geschäftsmodelle im Maschinen- und Anlagenbau : vom Basisangebot bis zum Betreibermodell. Berlin: Springer, 2004. - ISBN 3-540-40816-9. P. 15-29. Most the costs incurred by the OEM in PoP are variable costs such as labour and materials, though there is also in this case an additional variable cost for the equipment for every car produced https://store.theartofservice.com/the-variable-cost-toolkit.html

### Free-range eggs - Cost:

Free-range eggs - Cost The Commission’s report concludes that, if costs were to increase by 20%, which it says is the type of percentage increase in terms of variable costs that producers are likely to face as a result of switching to free-range, the industry will potentially suffer a loss of producer surplus of €354 million (EU-25). https://store.theartofservice.com/the-variable-cost-toolkit.html

### International One Design - One-design principles:

International One Design - One-design principles With any racing yacht, the largest contributor to variable costs are the sails https://store.theartofservice.com/the-variable-cost-toolkit.html