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Q&A - What are variable costs?

Jim Riley

1st March 2009

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Costs which change when output changes are called “variable costs”

Variable costs tend to be those relating directly to the production or sale of a product. Good examples include:

- Raw materials
- Bought-in stocks and components
- Wages based on hours worked or amount produced
- Marketing costs based on sales (e.g. % discounts offered on a sales price)
- Agent and other commissions

Total variable costs can be calculated by a simple formula:

Variable cost per unit x output

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Jim Riley

Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.

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