How to Use Average Fixed Cost
Enter the total fixed cost
Enter the amount of units produced
How to calculate the Average Fixed Cost
Average Fixed Cost formula:Total Fixed Cost/Total Units of Output
Jack owns a business in the city where he makes bicycles. There are 4 people working for him and they are paid a salary of $40,000 per year each. Jack also hired some equipment out for making bikes which cost $25,000 a year.
Along with renting the unit, utilities, salaries, and equipment the total costs per year is $200,000. Jack's business makes 2,000 bikes a year, therefore our total fixed cost is $200,000 and total units of output is 2,000.
Our Average fixed cost is: 200,00/2,000 = $100
Any costs that are not fixed such as raw materials for the bikes are not included. If the raw materials cost 200 per bike, the total cost to produce a bike is $300. Jack must then sell the bike at $300 to break even.
Definition:Average Fixed cost(AFC for short) is the fixed cost per unit of output.
To calculate the average fixed cost, we must get the total fixed cost for an output and then divide it by the number of units. Fixed Costs are the expenses that are unrelated to the number of goods produced or services offered. A company will have these expenses regardless.
Average fixed cost is used to calculate how much should be spent on each unit of production. As output increases the average fixed cost decreases, similarly if the output is decreased the average cost increases. If you'd like to calculate the Average Variable Cost you can use our Average Variable Cost calculator.