Definition – What is average variable cost?
AVC is the average cost per unit of costs that are variable (only incurred for each unit of production). There are different from fixed costs, which are costs that are incurred regardless of the number of items produced.
Formula – How to calculate AVC
Average Variable Costs = Total Variable Costs ÷ Quantity
Total variable costs are $300,000 and 400 units are produced.
Average Variable Costs = $300,000 ÷ 400 = $750
Therefore, average variable costs are $750 per unit.