Variable Cost

Variable costs vary directly with output. I.e. as production rises, a firm will face higher total variable costs because it needs to purchase extra resources to achieve an expansion of supply. Examples of variable costs include the costs of raw materials, labour costs and consumables.

Variable costs are costs that vary in proportion to the volume of goods or services produced. In other words, as the volume of production increases, the variable costs also increase. Variable costs are also known as direct costs or unit-level costs, as they are directly tied to the number of units produced.

Examples of variable costs include:

  1. Raw materials: The cost of the materials needed to produce a product, such as the cost of the steel needed to manufacture a car.
  2. Direct labour: The wages paid to workers who are directly involved in the production process, such as assembly line workers.
  3. Commission: The commission paid to salespeople based on the number of units they sell.
  4. Variable manufacturing overhead: Costs that vary with the volume of production, such as the cost of electricity used to run machinery.

See also

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