Definition Of

Variable costs

Variable costs are the costs that are not fixed that a company incurs as it generates sales.

It vary directly with the level of production and include costs related to the direct production of the product (such as costs of goods sold- COGS) and many of the marketing costs associated with selling it. Although these costs tend to be uniform for each unit produced, they are called variable because their total varies with number of units produced.

Variable costs are costs that vary in total directly and proportionately with changes in the activity level. If the level increases 10%, total variable costs will increase 10%. If the level of activity decreases by 25%, variable costs will decrease 25%. Example of variable costs include direct materials and direct labor for a manufacturer; cost of goods sold, sales commissions, and freight-out for a merchandiser, and gasoline in airline and trucking companies. A variable cost may also be defined as a cost that remains the same per unit at every level of activity.

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