Variable Expense

What is Variable expense?

A variable expense is one whose total amount changes in proportion to changes in sales, production, or some other activity

A company increases or decreases production as per the market demand. The cost incurred to produce goods during these highs and lows of demand in the market, affects the purchase of material, production quantity and delivery. Thus, the cost incurred for production varies from time to time. Therefore, such costs are known as variable costs.

Variable costs include the costs of raw materials and packaging, credit card transaction fees and shipping expenses, which rise and fall with sales.

A production expense known as a variable cost can go up or down in response to shifts in a company’s manufacturing activities. For instance, the raw materials required to make a product’s components are variable costs since they frequently change depending on the volume of units produced.

Variable expenses vary according to output volume. Expenses rise when output rises, while costs go down when output goes down. Contrarily, despite changes in production or industrial output, fixed expenses remain constant. Variable costs are therefore also the direct costs of production volume, rising in reaction to an increase in production and falling in response to a decrease in production.