Definition

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.


Variable costs are costs that arise when the first unit is produced and increase with production.

Share it:  Cite

More from this Section

  • Product & Service
    Product is the element of the marketing mix that is the good or service of a company offers ...
  • Prototype
    Prototype is the first physical depiction of a new product, will be produced. For a new ...
  • Grievances
    Grievances refers disputes caused by contract violations or different interpretations ...
  • First-mover Advantage
    First-mover advantage is a sometimes significant advantage, created by the opportunity ...
  • Business Model
    Business model is a company’s plan for how it competes, uses its resources, structures ...