Final answer:
The general approach to decomposing a variable cost variance into its component parts involves calculating average total cost, average variable cost, and marginal cost. These measures of costs help analyze costs on a per-unit basis and provide insights into a firm's profitability.
Step-by-step explanation:
The general approach to decomposing a variable cost variance into its component parts involves calculating average total cost, average variable cost, and marginal cost.
Average total cost is found by dividing total cost by the quantity of output. Average variable cost is calculated by dividing variable cost by the total output at each level of output. Marginal cost is the additional cost incurred from producing one more unit of output.
These measures of costs help analyze costs on a per-unit basis and provide insights into a firm's profitability.