Starting your own business

About us Business Structures Business Plans Business Finance Flexible Business Loans Small Business Marketing Start an Internet Business Home Based Business Company Formation Accounting and Bookkeeping Business Zone Business Dictionary
Latest News : Top 7 Thai expat myths - The Thaiger      Business start up advice ? Ready for Business tips on starting a business - Ready for Brexit      What should motivate the wellness industry: Passion or profit? - Startups.co.uk      Immigrant-led businesses 'contribute 13 billion to Scottish economy' - University of Strathclyde      The Enterprise Investment Scheme explained - Startups.co.uk      

Variable Costs

 

The term variable cost is used to describe those expenses which vary and change according to the level of business activity. Sometimes referred to as incremental, marginal or direct costs, they are defined as the amount by which total expenses increase following the production of one more unit.

The usefulness of variable costs to a small business start-up can be seen throughout the different areas of the budget setting and pricing decisions which it has to make.

Calculating the break-even point requires knowledge of the marginal and incremental costs of the products and services which the business sells in order to determine how much needs to be sold to achieve profitability.

Typically businesses will have a product or service cost card to identify the variable and other costs associated with the provision of that item. An example is shown below:

Cost card for the production of item X

Materials - 2 kilograms at £4 per kilogram
Labour costs - 1 hour at £8 per hour
Packaging - 1 foot at £3 per foot

Variable costs 2 x 4 + 1 x 8 + 1 x 3 = £19 per unit.

The above is therefore stating that the production of one of item X has a variable cost of £19 and therefore should be sold at a value at least equal or greater than this amount.

 
Email This Page  Print This Page


 
 
Site Search
Take the 6 question quiz and test your knowledge on matters relating to starting your own business
1. Working capital is used for
 
Medium term financing needs
Short term financing of the business
Long term finance
Medium to long term financing
  
Submit
 
Single Question Survey
Did you know that company formations can be carried out entirely online without any need for paper or written signatures?
 
Yes
No
  
Submit