Variable Costs

Definition - What does Variable Costs mean?

Variable costs are costs that increase or decrease in proportion to the goods and services that a business produce. It is a periodic cost that varies in accordance with the output and sales revenue of a business. A variable cost rises as the production in a particular business increases and falls as the production decreases. Variable cost is different from direct cost such as rent, equipment cost, security which tend to remain the same regardless of the output in production.

Petropedia explains Variable Costs

A variable is a corporate expense that varies with the output of production. Variable cost can include direct material costs or direct labor cost which is essential to complete a certain project. It includes raw material, energy usage, labor, distribution costs, etc. Companies with high variable cost are very different from companies with high fixed cost. The difference directly affects the financial structure of the company along with the pricing. For example - a companies variables cost is packaging material of its products, as the company produces more products the packing cost will increase.

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