What Is a Variable Cost?
Definition, examples, and how variable costs move with output.
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Quick answerA variable cost changes in total in direct proportion to the level of production or sales, such as raw materials or sales commissions. The cost per unit stays the same.
| Opposite of | Fixed cost |
|---|---|
| Per-unit behaviour | Constant |
| Topic | Cost accounting · Cost behaviour |
Variable cost in plain English
If you make nothing, you spend nothing on these costs. Make more, and the cost goes up in step. Materials, packaging and sales commissions are classic examples.
Worked example
Materials cost 4 per unit.
| Units produced | Total variable cost | Variable cost per unit |
|---|---|---|
| 100 | 400 | 4 |
| 500 | 2,000 | 4 |
Total variable cost rises with output, while the cost per unit stays at 4.
Common mistakes
- Treating all labour as variable. Salaried staff are usually a fixed cost.
- Ignoring semi-variable costs that mix a fixed charge with a usage charge.
Frequently asked questions
What is the difference between variable and fixed costs?
Variable costs change with activity. Fixed costs stay the same in total within a relevant range.
What are examples of variable costs?
Direct materials, packaging, piece-rate wages, delivery costs and sales commissions.
Why do variable costs matter for decisions?
They are used to find the contribution margin and the break-even point.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.