Variable Cost

Variable cost refers to expenses that fluctuate with the level of production or sales volume in a business. Unlike fixed costs, which remain constant regardless of output, variable costs change in direct proportion to the amount of goods or services produced. Examples include raw materials, labor, and shipping costs. Managing variable costs is crucial for businesses to maintain profitability, as these costs directly impact the cost of goods sold (COGS) and overall financial performance.

Example

A car manufacturer’s variable costs include the steel, rubber, and labor used to produce each vehicle. As production increases, the total variable costs rise accordingly.