Accounting: How to calculate variable cost ?

Question

If I am given a break even point of $320,000 and a selling price of $8 per unit and fixed costs of $140,000. Is it possible to calculate the total variable cost from this information?

Answer 1

Break even point is the required level of sales when desired net income equals zero.  Your usual equation is the following:

Sales = Variable Costs + Fixed Costs + Net Income

In your case, net income = 0 and sales = break even point.  Thus, you have:

Break-even Point = Variable Costs + Fixed Costs + 0

You know the two variables - break even point and fixed costs.  You can figure out the variable costs:

Variable Costs = Break-even Point - Fixed Costs = $320K - $140K = $180K.

Answer 2

Only by elliminating all of the other costs involved first.