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Variable Cost

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Variable Cost

An expense that varies with production output. Variable costs are those costs that vary depending on an entity's production volume; they rise as production increases and fall as production decreases.

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After Investopedia at http://www.investopedia.com/terms/v/variablecost.asp, accessed 27 December 2013.

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Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output. Fixed costs and variable costs comprise total cost. Variable costs can include direct material costs or direct labor costs necessary to complete a certain project. For example, a company may have variable costs associated with the packaging of one of its products. As the company moves more of this product, the costs for packaging will increase. Conversely, when fewer of these products are sold the costs for packaging will consequently decrease.


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