Whether you're an entrepreneur, finance student, or simply an economics enthusiast looking to learn the average variable cost formula, you have found yourself in the right place! With the help of our average variable cost calculator, you will get your AVC in no time - and that's not all this tool has to offer! Read on to find our more on the topic, find out what is average variable cost, see why it's something worth knowing, and learn how to calculate variable cost on your own.

What's the average variable cost formula, and how to use it?

You will notice that the average variable cost calculator is very simple, only consisting of fields. This is because the average variable cost formula is the simplest thing ever! See for yourself how to calculate average variable cost:

Average Variable Cost = Variable Costs / Total Output

For clarity's sake, let's briefly describe the formula's components:

  • Variable Costs (VC) are the costs that depend on the quantity of the goods produced. Examples of such costs are the costs of human labor, electricity costs, gasoline used in the production and transportation process, etc. To get the value of VC, you sum up all the marginal costs over all produced units; and

  • Total Output (Q), the quantity of goods produced over a certain time period.

Just to be safe, we'll go through a quick example using the average variable cost formula. Let's say we have:

VC = $600,000

and

Q = 240

The calculation is then $600,000 / 240 = $2,500. So, with these values, we have an AVC of $2,500!

What is average variable cost, and why should we care?

Now that we know how to calculate variable cost, you might wonder what to do with this new value? To put it shortly, AVC is the total variable cost per unit produced by a company (be it a physical product or a service).

But why is the information important? Simple - a smaller output means a smaller average cost. When the output grows, the costs does as well. Because of that, the AVC is used to monitor whether or not production should be temporarily shut down or decreased, so that costs that are too big for a company to handle are avoided. In general, if the price of a good is higher than the AVC of that good, the producer is successfully covering all the variable costs and a percentage of the fixed costs. In this case, the production should carry on as usual. If the opposite happens, it's a sign that production should be stopped (or at least decreased), in order to avoid additional variable costs.

Some other tools you might find helpful

Knowing how to calculate average variable costs is not the only thing an entrepreneur needs. Check out our other finance calculators if you want to discover some more useful business tools!

  • Contribution margin is the difference between the sales revenue and the variable costs of the product;

  • Profit margin tells you the percentage of the revenue that remains after the deduction of all expenses, such as taxes, interest, etc;

  • You can also find the profit margin with a discount calculator useful, as it combines the above with an added discount, and allows you to save precious time by calculating them together; and

  • The VAT calculator will let you calculate the value added tax - an information no business can operate without.

Maria Kluziak