Variable costs are the expenses incurred by a business in proportion to its output or revenue. The broad definition of variable costs includes any costs that vary depending on how much product a company produces or revenue it generates in other ways. If a project necessitates a larger investment from the company, the costs associated with the project as it expands—costs of labor, materials, and so on—are considered variable costs.
To calculate the variable costs, add all of the above-mentioned fluctuating expenses over a given time period.
The result of high variable costs for a company is more leeway in production output while maintaining profitability. Companies with high variable costs, on the other hand, will have lower marginal profits than those with high fixed costs. In assessing a company’s total cost structure, variable cost is paired with its inverse, fixed cost.
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