Variable costs are expenses that change in proportion to how much a company produces or sells. Based on a company's production or sales volume, variable costs rise or fall; they rise as production increases, and they fall as production decreases.
A business's total expenses are a combination of variable and fixed costs. Variable costs vary with production output or sales. Fixed costs are constant per unit produced. Increasing production and output will also increase variable costs. As a result, when fewer products are produced, the variable costs associated with production decrease.
Retail companies' credit card transaction fees or shipping expenses, which rise or fall with sales, are examples of variable costs. Variable costs can be contrasted with fixed costs.
Adding the quantity of output to the variable cost per unit of output yields the total variable cost:
Total Variable Cost = Total Quantity of Output X Variable Cost Per Unit of Output