Variable Costs- Production Waste

yasaswi gomes (My grammar is 💯 good I) (7290 Points)

18 February 2021

We all know Variable costs do not include abnormal wastage but includes normal waste. This will reduce your selling Mark-up as per this below example: With Waste & Without Waste

Variable overheads		Fixed overheads
Material	100000	Accounting expenses	30000
Labour	30000	Office & Admin	20000
Overheads	5000	Rent & Utilities	20000
Waste	20000	Depreciation	1000
Total	155000		71000

Sales units	30000
Per unit cost	155002	(50% Mark-up)
Sales price	232504
Contribution	77504
Net profit	6504

Variable overheads		Fixed overheads
Material	100000	Accounting expenses	30000
Labour	30000	Office & Admin	20000
Overheads	5000	Rent & Utilities	20000
Waste	0	Depreciation	1000
Total	135000		71000

Sales units	30000
Per unit cost	135002	(50% Mark-up)
Sales price	202504
Contribution	67504
Net profit	-3496