Variable Cost Examples In Business.Variable Costs is a method of determining the cost of production which only take into account the production costs. Thus, the components of production costs only consist of raw material costs, direct labor costs, and variable overhead costs.
10 Variable Cost Examples In Business.
Variable costs are expenses that change as the level of production or sales changes. In other words, they vary with the volume of output. Here are some common examples of variable costs in business:
- Direct Materials: The cost of raw materials that are used to manufacture a product is a variable cost. As production increases, the cost of raw materials will also increase.
- Direct Labor: Wages and salaries paid to employees who work on the production line or provide services to customers are a variable cost. As production or sales volume increases, so does the need for labor, resulting in higher labor costs.
- Commission: Commission paid to salespeople or brokers is a variable cost, as it is based on the sales they generate. The more sales they make, the higher the commission payout will be.
- Shipping and Freight: The cost of shipping and freight is a variable cost because it is based on the volume of goods being shipped. The more products that are shipped, the higher the shipping costs will be.
- Utilities: The cost of utilities, such as electricity, gas, and water, is a variable cost because it is based on usage. As production increases, so does the usage of utilities, resulting in higher costs.
- Packaging: The cost of packaging materials used to protect and ship products is a variable cost because it is based on the volume of products being produced and shipped.
- Advertising and Promotion: The cost of advertising and promotion is a variable cost because it is based on the amount of advertising and promotion that is done to generate sales. The more advertising and promotion that is done, the higher the cost will be.
Overall, variable costs can have a significant impact on a company’s profitability, and it is essential for businesses to monitor and manage these costs effectively.
