Updated on March 8, 2023
A Variable Cost is a cost or corporate expense which varies or changes as per the company’s production or sales volume.
This can increase or decrease as per company’s production and demand. Variable costs are more relevant for manufacturing and production companies, but can be applicable across businesses, adding to the overall expense structure of a company.
Examples of Variable Cost
For a company engaged in manufacturing of goods, the cost of raw materials and packaging will increase if the demand increases and consequently production is increased.
Similarly, shipping expenses for a wholesale or retail business will increase or decrease as per the sales.
Importance of Variable Costs
1. Variable Cost is used to assess expenses, margins, pricing, and profitability.
2. Variable Costs are included in calculation of total costs of a company, in addition to fixed costs.
3. Variable costs are an integral part of budgeting and planning for any businesses’ success.