In this way, variable costs can also be an indicator (among many) of your business's success. Variable costs tend to also run in direct proportion to demand and sales volume: If there is a great demand for your product, you will logically produce more (meaning higher variable costs) and then sell more. Types of variable costs might include raw materials, packaging, direct labor, sales commissions, utility costs, and distribution expenses. What Is Variable Cost?Ī variable cost is a type of ongoing expense that fluctuates in value depending on your production output. The below guide provides greater detail on what variable cost is, demonstrates how to calculate it, and explains how tracking variable costs benefits you as a business owner. Examples might include the cost of raw materials needed to produce your goods or the packaging you use to ship finished products to customers. If you aren't producing a lot of goods, variable costs decrease. So, if you are producing a lot of goods, variable costs increase. This refers to a type of expense that fluctuates in proportion to your business's production output. Variable cost is one factor you want to keep in mind. This information will then allow you to streamline your finances, cutting losses and ultimately boosting the bottom line. Up-to-date, accurate accounting will allow you to track cash inflow and outflow and monitor where you're gaining - or losing - money. Small businesses don't have the same monetary buffers as large corporations, so every penny really counts. If you're a small business owner, you undoubtedly want to keep a close eye on your finances. Home Learn Accounting What Is Variable Cost?
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