Average Variable Cost Calculator
Enter total variable cost and the number of units produced to find the average variable cost of each unit.
Updated
Average Variable Cost Calculator
Our Average Variable Cost Calculator shows how much variable cost goes into each unit you produce. Enter the total variable cost and the number of units and the answer appears at once, with the working. It is useful for pricing, break-even planning, short-run production decisions and microeconomics coursework.
Quick answer
Average variable cost is total variable cost ÷ units produced: 150,000 ÷ 5,000 = 30 of variable cost per unit.
- Variable costs only: materials, hourly labour, energy and packaging, not rent or salaries.
- Same period: take the cost and the output from the same month, quarter or year.
- Usually U-shaped: AVC falls at first, bottoms out, then rises as output grows.
- Shutdown rule: in the short run a firm keeps producing only while price covers AVC.
What Is Average Variable Cost?
Average variable cost (AVC) is the variable cost of producing one unit of output, on average. Variable costs are the costs that rise and fall with the amount produced:
- TVC (total variable cost): all costs that change with output in the period, such as raw materials, piece-rate or hourly labour, fuel, power and shipping.
- Q (output): the number of units produced in the same period.
Fixed costs (rent, insurance, loan interest, salaried staff) are left out. They are spread per unit by average fixed cost instead.
How to Calculate Average Variable Cost
A workshop spent 150,000 on materials, hourly wages and power to make 5,000 units in a quarter:
- Add up the variable costs. Materials, hourly wages and power for the quarter: 150,000.
- Count the output. Units produced in the same quarter: 5,000.
- Divide. 150,000 ÷ 5,000 = 30 of variable cost per unit.
If you know the variable cost of each input per unit, you can also add them directly: 18 of materials + 9 of labour + 3 of power = 30 per unit.
Average Variable Cost Examples
| Business: TVC ÷ Q | AVC |
|---|---|
| Bakery: 2,400 ÷ 800 loaves | 3 |
| T-shirt printer: 9,750 ÷ 1,500 | 6.50 |
| Workshop: 150,000 ÷ 5,000 | 30 |
| Furniture maker: 5,000 ÷ 7 chairs | ≈ 714.29 |
Why the AVC Curve Is U-Shaped
In the short run, AVC usually falls as output grows, because workers specialise and machines are used more fully. Past a point, diminishing marginal returns set in: each extra worker adds less output, so the cost per unit climbs again. A small factory with fixed floor space shows the pattern:
| Output: TVC | AVC |
|---|---|
| 100 units: 1,000 | 10 |
| 200 units: 1,600 | 8 |
| 300 units: 2,100 | 7 |
| 400 units: 3,000 | 7.50 |
| 500 units: 4,500 | 9 |
Marginal cost (the cost of each extra unit) cuts the AVC curve at its lowest point. Here the extra 100 units from 300 to 400 cost 900, or 9 each, which is above the AVC of 7, so AVC starts to rise.
AVC and the Shutdown Decision
In the short run a firm pays its fixed costs whether it produces or not. So it should keep producing as long as the price covers average variable cost, because every sale then also pays something towards fixed costs:
- Price above minimum AVC: keep producing. At a price of 8 the factory above covers its variable cost of 7 and has 1 per unit left for fixed costs.
- Price below minimum AVC: shut down for now. At a price of 6.50 every unit loses 0.50 on top of the fixed costs.
The lowest point of the AVC curve is called the shutdown point. In the long run all costs are variable, so the firm must cover average total cost to stay in business.
AVC vs AFC vs ATC
- AVC
- Total variable cost ÷ output. Usually U-shaped.
- AFC
- Total fixed cost ÷ output. Falls as output grows.
- ATC
- Total cost ÷ output, which equals AFC + AVC.
- MC
- Change in total cost ÷ change in output.
Because AFC keeps shrinking, the gap between ATC and AVC narrows as output rises.
Limitations and Common Mistakes
- Mixing in fixed costs. Rent or salaried staff inflate AVC and distort the shutdown decision.
- Mismatched periods. A year of costs divided by a month of output gives a meaningless figure.
- Semi-variable costs. Costs such as a phone plan with a base fee and usage charges need splitting into their fixed and variable parts.
- Treating AVC as constant. AVC changes with output, so the figure holds only near the output level you measured.
- Counting unfinished units. Use finished units, or equivalent units if work in progress is large.
How to Use the Average Variable Cost Calculator
- Enter the total variable cost. Type the variable costs for the period, such as 150,000. Commas are fine.
- Enter the units produced. Type the output for the same period, such as 5,000.
- Read and copy the result. Average variable cost appears as you type, with the working, the cost per 1,000 units and the units made per 1,000 of variable cost. Press Copy to copy it, or Clear or Esc to start again.
Example: variable cost 9,750 and 1,500 units. The result is 6.50, from 9,750 ÷ 1,500 = 6.50.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate average variable cost?
Divide total variable cost by the number of units produced in the same period. AVC = TVC ÷ Q.
What is the average variable cost if variable costs are 150,000 and output is 5,000 units?
It is 30. 150,000 ÷ 5,000 = 30 of variable cost per unit.
Which costs count as variable costs?
Costs that change with the amount produced: raw materials, hourly or piece-rate labour, power used by machines, packaging, shipping and sales commissions. Rent, insurance and salaries are fixed costs.
Why is the average variable cost curve U-shaped?
At low output, specialisation makes each unit cheaper, so AVC falls. At higher output, diminishing marginal returns mean each extra input adds less, so AVC rises again.
What is the shutdown point?
It is the lowest point of the AVC curve. In the short run a firm should keep producing while the price is at or above minimum AVC and shut down if the price falls below it.
What is the difference between AVC and ATC?
AVC covers only variable costs. ATC (average total cost) covers all costs, so ATC = AVC + AFC, where AFC is average fixed cost.
Can average variable cost be zero?
Yes, if a product has no variable costs at all, such as extra downloads of software already built. The calculator accepts 0 for total variable cost but needs more than 0 units.
Is the Average Variable Cost Calculator free?
Yes. It is completely free, needs no sign-up, and can be used as many times as you like.
Sources
- Wikipedia. Average variable cost.
- Wikipedia. Variable cost.
- Wikipedia. Average cost.
- Wall Street Prep. Average Variable Cost (AVC): Formula and Calculator.
- WallStreetMojo. Average Variable Cost: What Is It, Formula, Examples.
- AccountingCoach. What is a variable cost?.
Try our Average Variable Cost Calculator to find your cost per unit in seconds.