Who Wants To Know More About Variable Cost, One Of The Key Components To Determining Break Even?
Knowing variable cost for your business is critical to determining key profitability information. Without it you cannot calculate break even. And you will be denied access to extremely important and usually actionable information. You want to do a break even analysis to determine things like break even price, break even revenue volume, and break even unit volume. But without knowing your variable cost, you will get nowhere. So let’s take a hard look at it. It describes any cost that is directly related to an extra unit of sale. If you examine every one of your cost elements with that in mind, you won’t go too far wrong. So let’s look at a couple of examples that may help your understanding. The rent on your place of business. Does it increase if you sell one more unit of product? Of course not. Perhaps if you have a very peculiar type of rental agreement. What about shipping cost if any? It does increase by the cost of one additional shipment. The example of shipping cost is a good one
