Variable costs
In one sentenceCosts whose total changes in proportion to production or sales volume, such as raw materials, packaging and sales commissions, while the share per unit stays roughly constant.
Simply put
Every meal needs meat, bread and a box. The more you sell, the higher these costs, and if you sell nothing they are zero.
Knowing the variable cost per unit is the basis for calculating the contribution margin and the break-even point, and for deciding whether to accept an order at a special price.
Worked example
A restaurant's variable cost per meal is 25 SAR.
Selling 1,000 meals: 1,000 × 2525,000 SAR
Selling 2,000 meals: 2,000 × 2550,000 SAR
Cost per meal in both cases25 SAR
Formula: Variable cost per unit × Number of units
Don't confuse it with
Direct costs“Variable” describes how a cost behaves with quantity, and “direct” describes whether it can be traced to the product. A cost can be both direct and fixed.