What is the variable cost per unit? Variable cost is a price that changes with the direction and time of market movement. It is one of the major components of the forward price index methodology. Variable cost index also known as VAT, is often confused with the expression “cost of good sale” which should not be confused as the same thing. The main difference is that the first expression indicates the price at which the goods or services are supplied while the latter expression indicates the price at which they are sold.
The main purpose of what is the variable cost per unit is to provide pricing stability for specific products and services. The prices may change as the production or sales procedures change. In short, it aims to provide a similar service and price for similar products and services at similar prices throughout the supply chain.
How is this different from the fixed cost? In the case of fixed price, you have to factor in costs of production before you come up with your price. With what is variable CPV, you would only pay for the actual item purchased. Cost of good sale is usually included in the pricing. If the item is re-sold at a higher price, then the profit will go down. With what is variable CPV, you don’t pay for the item only once but you get to sell it more times and therefore gain profit each time.
How can companies benefit from what is the variable cost per unit pricing? Many companies buy large quantities of a product or service. If the wholesaler has lower overhead expenses and can pass on those savings to the retailer, then the retailer would be able to offer a discount on the product. This type of pricing can help increase profitability.
Other factors that can affect how much a company pays per unit are whether the product has a high profit margin, if there are heavy discounts at the start of the product’s life cycle and if the product is highly perishable. Wholesalers that offer what is variable CVP may also change the price of their products depending on the season. They may offer seasonal discounts so that customers buy what they need in the current season. They may even change the product’s specifications, for instance, putting a larger amount of butter into a less expensive product.
Another major advantage in what is the variable cost per unit pricing is that the retailer doesn’t have to store the product or handle the inventory. All of these activities are taken care of by the wholesaler. Thus, the company doesn’t have to add a part-time employee just to handle the inventory. What is the variable cost per unit can save a company thousands of dollars per year and that money could be used directly to increase the sales.
What is Variable cost per unit pricing can help companies that make jet liners and other high-end products because they can increase their prices based on what is variable CVP. This helps the company to increase sales without having to add a warehouse. Companies that sell what is variable CVP may also offer lower prices than more traditional distributors because they don’t have the same overhead costs as a distributor who ships by plane.
It is easy to calculate what is the variable cost per unit pricing. The only thing necessary is to know the number of units you expect to sell, the type of product and the average price per unit over time. You can then multiply this by your anticipated sales volume and your cost per unit. This will give you a clear picture of what is the variable cost per unit pricing actually is. The advantages of what is the variable cost per unit pricing are many and they can benefit any company that chooses to take this route when they purchase goods for their customers.