what is variable cost

Variable cost is a type of cost that changes in proportion to the quantity of goods or services produced by a business. It is the sum of marginal costs over all units produced. Variable costs are sometimes called unit-level costs as they vary with the number of units produced. Examples of variable costs include direct labor costs, cost of raw materials used in production, utility costs, sales commissions, credit card transaction fees, and shipping expenses. Variable costs increase or decrease depending on a companys production or sales volume—they rise as production increases and fall as production decreases. Variable costs are usually viewed as short-term costs as they can be adjusted quickly. Understanding which costs are variable and which costs are fixed is important for business decision-making.