How does product wasted lead to increased variable costs? Doesn't the same amount of inputs go in to create the product regardless of whether the product was finally sold or not? So how does it increase variable cost?
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Product wastage and variable costs
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You squeeze 3 lemons by hand to get a cup of lemonade. Lemons cost $1 each, so each cup costs you $3 in variable costs.
You then make a machine that allows you to get more juice per lemon by squeezing more surface area. You now only need 2 lemons to get a cup of lemonade. A cup now costs you $2 in variable costs.
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Variable cost is per unit product sold, and not produced.
If you produce 100 units of product but 50 units go waste - your revenue will be from 50 units, but your production cost will be from 100 units.
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