What is Variable Cost?

Variable costs are the costs a company incurs proportionately to production quantity or revenue. The general variable cost definition includes any costs that fluctuate depending on how much product a company produces or revenue it creates otherwise. If a project demands larger investment from the company, the costs associated with the project as it grows—cost of labor, material, etc.—are considered variable costs.

To calculate variable cost: add together all fluctuating expenses outlined above within a specified period of time.

The implication of high variable costs for a company is more room for fluctuation in production output while still maintaining profitability. Conversely, companies with high variable costs will yield lower marginal profits than those with high fixed costs. Variable cost is paired with its opposite, fixed cost, in evaluating the total cost structure of a company.

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