Variable Costs
Expenses that change with production or sales volume.
Variable costs fluctuate in direct proportion to business activity—as production or sales increase, variable costs rise, and vice versa. Examples include raw materials, shipping costs, sales commissions, and credit card processing fees. Understanding variable costs per unit is essential for pricing, contribution margin analysis, and break-even calculations.
Example
An e-commerce business selling handmade candles has variable costs of $4.50 per candle (wax, wick, jar, label, shipping)—selling 1,000 candles costs $4,500, while 2,000 costs $9,000.
Why It Matters for Your Business
Variable costs directly determine how much profit each additional sale generates, making them critical for pricing decisions and profitability analysis.
Related Terms
More Business Terms
Accounts Reconciliation
Ensuring account balances match between different records.
Break-Even Point
The sales volume at which revenue equals costs.
Budget
A financial plan estimating income and expenses.
Financial Forecast
A prediction of future financial performance.
Capital Expenditure
Funds used to acquire or upgrade physical assets.
Related Financial Guides & Resources
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