Variable cost
Variable cost is a cost whose total rises in direct proportion to activity volume while the unit cost remains constant. Direct materials, piece-rate wages, and sales commissions are typical examples.
Also known asvariable costs
See it move
A cost-behaviour chart plots total cost in euros on the vertical axis against volume in units on the horizontal axis, producing a straight line through the origin. At a rate of €2.40 per unit, 5,000 units produce a total cost of €12,000 and 10,000 units produce €24,000 — the line doubles when volume doubles. Unlike fixed costs, the per-unit rate is constant at every output level, so total cost and volume move in exact proportion.
The formula
Variables
- Total variable cost (€)
- Variable cost per unit — constant within the relevant range (€ per unit)
- Output or activity level (units)
Total variable cost scales in direct proportion to output; the per-unit rate v remains constant across the relevant range.
Check yourself
A courier firm pays drivers €0.18 per kilometre in fuel and €0.07 per kilometre in vehicle wear. At 50,000 km the combined total of these costs is €12,500; at 100,000 km it is €25,000. Which statement best describes the nature of these costs?