Calculation of Total Variable Cost

To calculate the total variable cost, we need to subtract the average fixed cost from the total cost of production.

Given Information:

• Total cost of producing 30 units of output = Rs. 350


• Average fixed cost at this level of output = Rs. 7

Calculation:

• Variable cost = Total cost - Fixed cost


• Fixed cost = Average fixed cost x Quantity

Substituting the given values in the above formulas, we get:

• Fixed cost = 7 x 30 = Rs. 210


• Variable cost = 350 - 210 = Rs. 140

Therefore, the total variable cost for producing 30 units of output is Rs. 140.

Explanation:

The total cost of production includes both fixed and variable costs. Fixed costs are those costs that do not vary with the level of production, such as rent, salaries, etc. Variable costs, on the other hand, vary with the level of production, such as raw materials, direct labor, etc.

In this question, we are given the total cost of producing 30 units of output and the average fixed cost at this level of output. Using this information, we can calculate the fixed cost and then subtract it from the total cost to get the variable cost.

It is important to note that the average fixed cost remains constant regardless of the level of production. However, the average variable cost decreases as the level of production increases. This is due to the concept of economies of scale, where the cost per unit decreases as the level of production increases.

In conclusion, the calculation of total variable cost involves subtracting the fixed cost from the total cost of production. It is an important concept in cost accounting and helps in determining the profitability of a business.