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Variable costs or direct costs are expenses that change in direct proportion to the activity of a business.
For example, a manufacturing firm pays for raw materials. When activity is decreased, less raw material is used, and so the spending for raw materials falls. When activity is increased, more raw material is used and spending therefore rises. Note that the changes in expenses happen with little or no need for managerial intervention. This article needs to be cleaned up to conform to a higher standard of quality. ...
There are many expense categories in business that consist of both fixed and variable components, like electricity. A company will pay for line rental and maintenance fees each period regardless of how much power gets used. And some electrical equipment (air conditioning or lighting) may be kept running even in periods of low activity. These expenses can be regarded as fixed. But beyond this, the company will use electricity to run plant and machinery as required. The busier the company, the more the plant will be run, and so the more electricity gets used. This extra spending can therefore be regarded as variable. Cost accounting is the process of tracking, recording and analyzing costs associated with the activity of an organization, where cost is defined as required time or resources. Costs are measured in units of currency by convention. ...
In retail the variable costs are the cost of goods.
Although taxation usually varies with profit, which in turn varies with sales volume, it is not normally considered a variable cost.
Along with fixed costs, variable costs make up one of the two components of total cost. Cost accounting is the process of tracking, recording and analyzing costs associated with the activity of an organization, where cost is defined as required time or resources. Costs are measured in units of currency by convention. ...
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