Financial Statement Analysis
 Profitability Ratios
 Profitability Ratios Formula
 Common Size Income Statement
 Vertical Analysis of Income Statement
 Profit Margin
 Profit Margin Formula
 Profit Percentage Formula
 Profit Formula
 Gross Profit Margin Formula
 Gross Profit Percentage
 Operating Profit Margin Formula
 EBIT Margin Formula
 Operating Income Formula
 Net Profit Margin Formula
 EBITDA Margin
 Degree of Operating Leverage Formula (DOL)
 NOPAT Formula
 OIBDA
 Earnings Per Share
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 Basic EPS vs Diluted EPS
 Return on Equity (ROE)
 Return on Equity Ratio
 Return on Capital Employed (ROCE)
 ROCE Formula (Return on Capital Employed)
 Return on Invested Capital (ROIC)
 Return On Investment (ROI)
 Rate of Return on Investment
 Return on Sales
 ROIC Formula (Return on Invested Capital)
 Return on Investment Formula (ROI)
 ROIC vs ROCE
 ROE vs ROA
 CFROI
 Cash on Cash Return
 Return on Total Assets (ROA)
 Return on Total Assets Formula
 Return on Average Capital Employed
 Capital employed Employed
 Return on Average Assets (ROAA)
 Return on Average Equity (ROAE)
 Return on Assets Formula
 Return on Equity Formula
 DuPont Formula
 Net Interest Margin Formula
 Earnings Per Share Formula
 Diluted EPS Formula
 Contribution Margin Formula
 Unit Contribution Margin
 Revenue Per Employee Ratio
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 EBIT vs EBITDA
 EBITDAR
 Capital Gains Yield
 Tax Equivalent Yield
 LTM Revenue
 Operating Expense Ratio Formula
 Overhead Ratio Formula
 Variable Costing Formula
 Capitalization Rate
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 Comparative Income Statement
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 Total Expense Ratio Formula
 Markup
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 Ratio Analysis (17+)
 Liquidity Ratios (29+)
 Turnover Ratios (17+)
 Efficiency Ratios (7+)
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Related Courses
 What is Variable Costing Formula?
 Examples of Variable Costing Formula
 Variable Costing Formula Calculator
What is Variable Costing Formula?
Variable Cost formula is quite straightforward and is calculated by dividing the total variable cost of production by the number of the units produced. The variable cost of production primarily includes direct labor cost, direct raw material cost and variable manufacturing overhead which is easily available from the income statement.
Mathematically, it is represented as,
Conversely, this can also be represented as a summation of direct labor cost per unit, direct raw material cost per unit and variable manufacturing overhead per unit. Mathematically, it is represented as,
Explanation of the Variable Costing Formula
The variable costing formula can be calculated in the following five steps:
 Step 1: Firstly, direct labor cost directly attributes to production. The direct labor cost is derived according to the rate, level of expertise of the labor and the number of hours employed for the production. Nevertheless, the cost can be extracted from the income statement.
 Step 2: Secondly, one has to identify the type of material required and then the amount of material to be used in the production of each unit to determine the unit price of those materials. However, the direct raw material cost can also be extracted from the income statement.
 Step 3: Thirdly, identify the other remaining variable part of the manufacturing overhead from the income statement.
 Step 4: Now, determine the most crucial part of the formula which is the number of units that have been produced from the production details annexed with the annual report.
 Step 5: Finally, add up direct labor cost, direct raw material cost, and variable manufacturing overhead and then divide the sum with the number of units produced.
Examples of Variable Costing Formula
Let’s take a few simples to advanced examples to understand Variable Costing Formula
Variable Costing Calculation – Example #1
Let us assume that XYZ Limited is a company that manufactures clothes for people of the elite class living in the modern city. The managerial accountant provides the following data, which has been vetted by the financial director of the company, that:
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 Raw material per unit of cloth = $10
 Labor cost per unit of cloth = $6
 Fixed cost in total for the period = $500,000 (redundant)
 Salary for Sales team for the period = $250,000 (redundant)
 Other direct costs (variable overhead) per unit of cloth = $4
Therefore, Variable costing formula= Raw material per unit of cloth + Labour cost per unit of cloth + Other direct costs (variable overhead) per unit of cloth
 Variable costing formula= $10 + $6 + $4
 Variable costing formula= $20 per unit of cloth
Variable Costing Calculation – Example #2
Let us assume ABC Limited is a manufacturer of mobile phone covers. The company currently has received an order for 1,000,000 mobile covers at a total contract price of $350,000. However, the company is not sure whether the order is a profitable proposition. The following are the excerpts from the entity’s income statement for the calendar year ending in December 2017:
 Raw material = $300,000
 Labour cost = $150,000
 Machinery = $100,000
 Insurance = $50,000
 Equipment = $100,000
 Utilities (fixed overhead) = $40,000
 Utilities (variable overhead) = $150,000
 Number of mobile covers produced = 2,000,000
Now, based on the above information calculation of variable costing will be,
 Variable costing formula= (Raw material + Labour cost + Utilities (variable overhead)) ÷ Number of mobile covers produced
 Variable costing formula= ($300,000 + $150,000 + $150,000) ÷ 2,000,000
 Variable costing = $0.30 per mobile case
 As per the contract pricing, the per unit price = $350,000 / 1,000,000 = $0.35 per mobile case
Therefore, the variable costing is lower than the pricing offered in the contract which means that the order should be accepted.
Variable Costing Formula Calculator
You can use the following Variable Costing Formula Calculator
Direct Labour Cost  
Direct Raw Material Cost  
Variable Manufacturing Overhead  
Number of Units Produced  
Variable Costing Formula =  
Variable Costing Formula = 



Relevance and Use of Variable Costing Formula
The variable costing formula helps a company in the determination of the contribution margin of a product, which eventually aids the breakeven analysis that can be conducted to fix the number of units needed to be sold to book a profit.
Further, the application of variable costing in the production and sales of additional units can add to a company’s bottom line in terms of profit because the units would not cost the company any additional fixed cost to produce. Variable costing excludes fixed or absorption costs and hence profit is most likely to increase owing to the money made through the sale of the additional items.
Variable Costing Calculation (with excel template)
Let us assume that PQR is a chocolate factory and has the costs, sales, and production information as per below template.
In belowgiven template is the data of the chocolate factory.
By using the abovegiven data we will first calculate the total variable cost.
So the calculation of total variable cost will be
In the below given excel template, we have used the Variable costing calculation to find the chocolate factory’s Variable Costing.
So the Variable Costing Calculation will be:
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This has been a guide to Variable Costing Formula. Here we discuss its uses along with simple to advanced practical examples to understand Variable Costing Formula. Here we also provide you with Variable Costing Formula Calculator along with downloadable excel template. You can learn more about Financial Analysis from the following articles –