VARIABLE COSTS

DEFFINITION

DESCRIPTION
Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases

EXAMPLE
a company may have variable costs associated with the packaging of one of its products. As the company moves more of this product, the costs for packaging will increase. Conversely, when fewer of these products are sold the costs for packaging will consequently decrease.

Variable costs can include direct material costs or direct labor costs necessary to complete a certain project

VARIABLE COSTS
Variable costs can include direct material costs or direct labor costs necessary to complete a certain project

WHY IS IMPORTANT

• Determine the cost.
• Time that it will take for you to produce one unit of product or service.

EXAMPLE
A construction company has a variable expense, since the amount of wood it purchases will vary according to the number of jobs the company takes.