Variable cost

Variable costs are expenses that change in direct proportion to the level of production or sales volume of a company. These costs vary as the company’s production or sales activity changes.

As the level of production increases, variable costs increase, and as production decreases, variable costs decrease. Variable costs are tied to the company’s output or activity level, meaning they fluctuate based on the number of units produced or sold.

Variable costs are expenses that change in direct proportion to the level of production or sales volume of a company
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Examples of variable costs include:

Direct Materials: The cost of raw materials used in the production of goods. As more units are produced, the cost of direct materials increases.

Direct Labor: Wages and salaries paid to workers directly involved in the production process. The more units produced, the higher the direct labor cost.

Variable Overhead: Other production-related costs that vary with the level of activity, such as electricity, water usage, and certain maintenance expenses.

Sales Commissions: Commissions paid to salespeople based on their sales performance. As sales increase, the commission expenses also increase.

Packaging and Shipping Costs: Costs associated with packaging products and shipping them to customers. These costs increase with higher sales volume.

Raw Material Transportation: Costs associated with transporting raw materials to the production facility. As production increases, so do transportation costs.

Utilities: Variable costs such as electricity and gas used in the production process or for lighting and heating facilities.

Sales Discounts: Discounts offered to customers to encourage higher sales. The cost of these discounts increases with increased sales.

Variable costs are contrasted with fixed costs, which remain constant regardless of the production or sales volume. Fixed costs include expenses like rent, insurance, salaries of non-production employees, and depreciation.

Analyzing variable costs is essential for businesses to understand their cost structure, determine the breakeven point, and make informed decisions about pricing and production levels. By distinguishing between variable and fixed costs, companies can better understand their cost behavior and plan their operations to maximize profitability.


The 10 qualities of a good retailer

  • Good buyer; should buy goods which are demanded by the consumers.
  • Pleasantiness; should love his work and deal with his customers kindly.
  • Predict demand; should forecast consumers demand and stock goods accordingly considering their tastes and preferences.

  • Good administrator; should be able to monitor the movement of his stock and also supervise his staff to avoid theft and cases of misappropriation.
  • Relationship with suppliers; should maintain a good relationship with the suppliers by paying them promptly hence enabling him get discounts from them.
  • Honesty; should always tell his customers true information concerning the price, quality of the products e.t.c and should not un necessarily over charge the buyers to make abnormal profits.
  • Flexibility; should always adjust his business in line with the consumers tastes and preferences.
  • Availability; should always be available whenever customers need him/her and should be able to extend his/her working hours to attend to the customers at any time they want to buy.
  • Proper records; should have knowledge of book-keeping to enable him know whether the business is operating at a profit or at a loss.

  • Offering credit; should be in position to offer credit facilities to the trustworthy customers without any fear of bad debts.
  • Variety stocking; should be able to stock a wide range of products to meet the tastes of different customers.
  • Proximity with the buyers; should locate his/her business near the customers to enable him/her sell goods quickly to them and also save customers from incurring high transport costs.
  • Hygienic; should maintain a high degree of cleanliness to enable customers develop interest in his/her products