What is the Average Fixed Cost Formula?
Fixed costs are those costs that remain the same irrespective of the quantity produced. Average fixed costs refer to the costs calculated by dividing the total fixed costs of production by the quantity of output. Thus, average fixed costs are the fixed costs calculated per unit of output. The formula of Average Fixed Cost is given below –
In symbolic terms,
With an increase in the quantity of output produced, the average fixed cost reduces. It is because the fixed cost remains the same while the number of output increases.
The difference between the average total cost and the average variable cost is also the average fixed cost.
In symbolic terms,
Calculation of Average Fixed Cost (Step by Step)
In order to calculate the average fixed costs, the following steps are to be undertaken.
 Step 1: Aggregate all the fixed costs to find out the total fixed costs.
 Step 2: Find out the number of units produced.
 Step 3: Use the formula for Average Fixed Cost = Fixed Cost / Quantity to find out the average fixed cost.
In some instances, the total cost is given. The steps to calculate the average fixed cost in such a scenario are:
 Step 1: Find out the total variable cost.
 Step 2: Find out the number of units produced.
 Step 3: Find out the average total cost using the equation. i.e Average Total Cost = Fixed Cost / Quantity
 Step 4: Find out the average variable cost using the equation. i.e Average Variable Cost = Variable Cost / Quantity
 Step 5: Find out the average fixed cost using the formula. i.e., Average Fixed Cost = Average Total Cost – Average Variable Cost
Examples
Example #1
Brathway Inc. is a manufacturing concern. It incurs a total fixed cost of $9000 in the entire year. There are two scenarios
 Scenario 1: The units produced are 300.
 Scenario 2: The units produced are 600
Calculate the average fixed cost under both scenarios.
Solution:
Use below given data for the calculation of average fixed cost.
Scenario 1:
Calculation of average fixed cost can be done as follows:
Average Fixed Cost = 9000 / 300
Average Fixed Cost will be –
Average Fixed Cost = $30
The average fixed cost is $30 per unit under Scenario 1.
Scenario 2:
Calculation of average fixed cost can be done as follows:
Average Fixed Cost = 9000 / 600
Average Fixed Cost will be –
Average Fixed Cost = $15
The average fixed cost is $15 under Scenario 2.
Example #2
George Inc. is a factory manufacturing chocolates. It produces 2,500 units of chocolates. It incurs the following fixed costs annually:
Three contract workers are hired. Calculate the average fixed cost from the above information. Suppose 5,000 units are manufactured with the same total fixed costs. Will the average fixed costs change?
Solution:
Scenario 1:
2,500 units are produced
Salary of 3 contract workers = 3*$1,500 = $4,500
Calculation of Fixed Cost will be –
Total Fixed Costs = $2,500 + $4,500 + $2,000 + $1,000
Total Fixed Costs = $10,000
Calculation of average fixed cost can be done as follows:
Average Fixed Cost = 10000 / 2500
Average Fixed Cost will be –
Average Fixed Cost = $4
The average fixed cost is $4 per unit.
Scenario 2:
5,000 units are manufactured
Calculation of average fixed cost can be done as follows:
Average Fixed Cost = 10000 / 5000
Average Fixed Cost will be –
Average Fixed Cost = $2
If 5,000 units are manufactured, the average fixed cost is $2.
Example #3
Franklin Inc. is a shoe manufacturer. The total costs incurred by it in a year are $60,000, and the units produced are 10,000. The total variable costs given this level of output are $30,000. Calculate the average fixed cost.
Solution:
Use below given data for the calculation of average fixed cost.
We first have to find out the total fixed costs.
Calculation of Total Fixed Costs will be –
Total Fixed Costs = Total Costs – Total Variable Costs
Total Fixed Costs = $60,000 – $30,000
Total Fixed Costs = $30,000
Calculation of average fixed cost can be done as follows:
Average Fixed Costs = 30000 / 10000
Average Fixed Cost will be –
Average Fixed Cost =$3
The average fixed cost is $3 per unit.
Example #4
An organization incurs individual fixed costs which are as follows:
The total quantity produced is 10,000 units. Calculate the average fixed cost.
Solution:
Step 1: We first have to calculate the total fixed costs.
Total Fixed Cost = 15000 + 20000 + 20000 + 45000
Total Fixed Cost = 100000
Step 2: Here, we will calculate the Average Fixed Cost. Insert the formula = B7/B8 in cell B9.
Average Fixed Cost = 100000 / 10000
Average Fixed Cost will be –
Average Fixed Cost = 10
Therefore, the Average Fixed Cost is $10 per unit.
Average Fixed Cost Calculator
You can use this average fixed cost calculator.
Fixed Cost  
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Average Fixed Cost Formula  
Average Fixed Cost Formula = 


Relevance and Uses
 In managerial economics, a graph of average fixed costs is prepared by the decisionmakers. The graph of average fixed costs is plotted with quantity on the horizontal axis and costs on the vertical axis. Other variables like input prices and taxes are kept constant while making the graph. We have a constantly declining average fixed cost curve. It is negatively sloped.
 As there is an increase in the production volume, the average fixed cost tends to reduce. The reason is that the fixed costs are spread over a larger quantity of output. This is known as economies of scale. Hence, to lower perunit costs, an organization should go for an increase in production volume. It is crucial to keep in mind the concept of economies of scale while determining pricing policies. It even finds its application in strategic planning.
 Fixed costs remain constant in the short run. However, the management should try to reduce its fixed costs in the long run. For instance, let us assume rent for factory premises are incurred and are a significant portion of fixed costs. Does it make sense to shift the factory to another location outside the city to reduce costs? These are the kinds of decisions that will have a bearing on the average fixed costs in the long run.
 While analyzing costs, the average fixed costs are calculated at different levels. The impact of carrying out production to varying levels on average fixed costs has to be calculated.
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