# What is variable cost rate?

Variable cost rate is the measure of the total expenditure of a business. If the variable cost rate is set at one thousand dollars, the production of a product will increase to one thousand dollars per unit. However, if production is cut in half, the total expenditure will decrease to nine hundred dollars. Therefore, determining variable cost rate will help a business determine whether to increase production or not. There are several ways to calculate variable cost rate and this article will show you how to do so.

## Average variable cost

The variable cost rate is the percentage of total costs that vary according to the type of product or service. If a product costs \$12,000, then its total variable cost is \$12,000. The rate and the amount of activity determine the total variable cost. For example, if a product costs \$12,000 to produce, then the cost of that product is \$8,000; however, if it costs \$22,000, then the cost is \$24,000. Using an average variable cost rate will make it easier to estimate net profits in the long run.

The average variable cost rate can be determined by using a utility revenue requirement. This formula does not capture all utility rate cases. In such cases, the variable cost rate is calculated by dividing the fixed revenue of each rate class by the total fixed revenue of all rate classes. If this formula is applied to a rate, the cost of energy produced will be equal to the variable cost rate. However, it is important to note that an average variable cost rate does not reflect the total cost of energy produced.

## Variable cost per unit

Variable cost per unit is the cost for each unit produced by a business. It varies with activity and volume. It is not a committed cost for the company, but occurs only when the business produces a particular unit. The following example will show how to calculate variable cost per unit for a business. X ltd. is a small printer that produces 450 books a month. The company has a total sales price of \$125,000. The company’s variable cost per unit is approximately \$70,000 for the year.

Generally, the variable cost per unit of output is the total cost of raw materials. This cost increases with the amount of output. If a business needs to order more supplies than it produces, its variable cost rate will be higher than average. In addition, it is impossible to calculate variable cost per unit if expenses are improperly segregated. Therefore, it is important to understand what causes variable cost per unit. If you don’t understand why variable cost per unit is important, read on.

## Variable cost per hour

Whether the worker is paid by the piece or by the bill, variable cost per hour has many variations. Piece rate labor is paid for each unit produced; billable hours are paid for each employee’s work that can be billed. Commission is another example. Salespeople are paid only when they sell something. If a salesperson sells more than expected, they’re only paid for that. Another example of variable cost per hour is commission.

A company has a production dept that incurs \$1.5 million in fixed costs every month. However, this department is not working to its maximum capacity and must work an extra ninety-hour month to reach their target production level. As a result, variable cost per hour includes electricity bills, telephone bills, raw material expenses, and salaries at \$12000 per hour. These are the variables that determine the profitability of a company.