Variable Cost Calculation for The Dugger Company

What is the variable cost per shovel for The Dugger Company?

If the company produces zero shovels, the total cost is $1,000. If the company produces 2,000 shovels, the total cost is $15,000. Each shovel has a variable cost of $7. What is the variable cost per shovel?

Variable Cost Calculation

Variable cost is a term used to describe an expense that varies depending on sales or production output. In the case of The Dugger Company:

If the company doesn't produce any shovels, the total cost is $1,000. This represents the fixed cost component of the total expenses.

When the company produces 2,000 shovels, the total cost is $15,000. This total cost includes both fixed and variable costs.

Each shovel has a variable cost of $7, which means that this is the cost that varies based on the production output.

To calculate the variable cost per shovel:

Calculating Variable Cost per Shovel

Variable cost changes according to the intensity of activity because that is how it works. For each unit, it stays the same. Variable costs are those expenses that change depending on how much of a good or service a company provides.

Variable costs are calculated as the sum of all marginal costs for all produced units. They can be viewed as standard expenses as well. Costs that are constant and costs that are variable make up the total cost.

Despite the fact that there is no level of exercise, the expense is $1,000. It indicates a fixed cost.

Producing 2,000 shovels will cost $15,000 in total. Fixed costs must be subtracted from total costs in order to arrive at variable costs.

Hence, the variable cost of manufacturing 2,000 shovels is calculated as follows: $15,000 - $1,000 = $14,000.

Therefore, the variable cost per shovel is determined by dividing the total variable costs by the number of shovels produced:

$14,000 / 2,000 = $7 per shovel.

So, the variable cost per shovel for The Dugger Company is $7.