Variable cost

A business cost that changes as production or activity changes. Materials and piece-rate labor are common examples.

Fixed cost: A cost that stays constant over a defined range of activity and period. Its total does not rise with each additional unit produced.
Break-even analysis: A method for finding the sales level at which revenue equals total costs. Variable cost per unit helps determine the break-even sales volume.
Cost driver: A factor that causes or explains changes in the cost of an activity or resource. Production volume is a common driver of variable costs.
Step cost: A cost that stays constant within activity bands and jumps when a threshold is crossed. Unlike a smooth variable cost, it changes in discrete increments.
Contribution margin: Revenue remaining after variable costs are subtracted, available to cover fixed costs and profit. It shows how much each sale contributes after variable spending.
Cost-volume-profit analysis: Analysis of how costs, sales volume, and prices affect operating profit. It models how changing variable costs alters profit at different output levels.
Relevant range: The activity interval over which assumed cost relationships remain valid. A cost may behave variably only within a specified operating range.
Semi-variable cost: A cost with a fixed base amount and an additional amount that changes with usage. Its activity-sensitive portion resembles variable cost, but its base does not vary.
Marginal cost: The change in total cost caused by producing one additional unit. It measures the incremental cost of increasing output.
Operating leverage: The sensitivity of operating profit to changes in sales, shaped by the mix of fixed and variable costs. A higher variable-cost share generally reduces the effect of sales changes on profit.

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