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What is a 'Variable Cost'

A variable cost is a corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output. Fixed costs and variable costs comprise total cost.

BREAKING DOWN 'Variable Cost'

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

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RELATED FAQS
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    Learn about variable costs and direct costs, how direct costs and variable costs are classified and the differences between ... Read Answer >>
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    Understand the difference between a fixed cost and a variable cost, and learn how a company benefits from having more fixed ... Read Answer >>
  3. How do fixed and variable costs each affect the marginal cost of production?

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  4. Do production costs include all fixed and variable costs?

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  5. How are fixed costs treated in cost accounting?

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