What are Variable Costs?
Variable costs are costs that vary with production or sales volume. They tend to increase as production or sales increase, and decrease as production or sales decrease. Variable costs are also known as unit-level costs, as they are directly related to the number of units produced or sold.
Examples of Variable Costs
Common examples of variable costs include:
- Raw materials
- Direct labor
- Commissions
- Sales commissions
- Sales territory costs
- Delivery expenses
- Packaging costs
- Transportation costs
Variable costs are important to consider when developing a pricing strategy. Since they increase as production or sales increase, they can significantly increase the cost of each unit produced or sold. Properly managing variable costs can help ensure that businesses remain profitable.
Fixed Costs vs Variable Costs
Fixed costs are costs that remain constant regardless of production or sales volume. Examples of fixed costs include rent, insurance, and salaries. Unlike variable costs, fixed costs do not change with production or sales volume. They are also not directly related to the number of units produced or sold.
Conclusion
Variable costs are costs that vary with production or sales volume. Examples of variable costs include raw materials, direct labor, commissions, and transportation costs. Variable costs are important to consider when developing a pricing strategy, as they can significantly increase the cost of each unit produced or sold. Fixed costs are costs that remain constant regardless of production or sales volume. For more information about variable and fixed costs, please see the following resources: