What is a ‘Variable Cost’
A variable cost is a corporate expense that varies with production output. Variable costs are those costs that vary depending on a company’s production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output. Fixed costs and variable costs comprise total cost.
Explaining ‘Variable Cost’
Variable costs can include direct material costs or direct labor costs necessary to complete a certain project. For example, a company may have variable costs associated with the packaging of one of its products. As the company moves more of this product, the costs for packaging will increase. Conversely, when fewer of these products are sold the costs for packaging will consequently decrease.
Further Reading
- Are there economies of scale in underwriting fees? Evidence of rising external financing costs – academic.oup.com [PDF]
- Economics of fish production in Kaduna State Nigeria – agris.fao.org [PDF]
- Empirical research in transaction cost economics: challenges, progress, directions – link.springer.com [PDF]
- An empirical comparison of published replication research in accounting, economics, finance, management, and marketing – www.sciencedirect.com [PDF]
- Interpreting risk allocation mechanism in public–private partnership projects: an empirical study in a transaction cost economics perspective – www.tandfonline.com [PDF]
- Empirical research in transaction cost economics: a review and assessment – www.jstor.org [PDF]
- Trends in the Costs of Weapon Systems and the Consequences – www.tandfonline.com [PDF]
- Transaction cost economics: An assessment of empirical research in the social sciences – www.cambridge.org [PDF]
