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Courses Glossary Register Login Home     Financial Terms and Glossary     Variable cost 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.

Key points

• Costs that fluctuate with production or sales volume.

• Include expenses like raw materials, labor, and shipping.

• Directly affect the cost of goods sold and profitability.

Quick Answers to Curious Questions What is the difference between variable and fixed costs?

Variable costs fluctuate with production levels, while fixed costs remain constant regardless of output.

How do variable costs impact a company’s profitability?

Higher production levels increase variable costs, which directly affect the cost of goods sold and overall profitability.

What are common examples of variable costs in manufacturing?

Examples include raw materials, direct labor, and packaging or shipping costs that vary with production levels.

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