Q&A - What are variable costs?

Costs which change when output changes are called “variable costs”

Variable costs tend to be those relating directly to the production or sale of a product. Good examples include:

- Raw materials
- Bought-in stocks and components
- Wages based on hours worked or amount produced
- Marketing costs based on sales (e.g. % discounts offered on a sales price)
- Agent and other commissions

Total variable costs can be calculated by a simple formula:

Variable cost per unit x output