Variable costs refer to those expenses which changes directly with the change in production of units and therefore the more the production of units the more will be the expense. Given below are the variable costs examples –
- Raw Material – When the company is into production of goods then it uses raw material, so for example a furniture shop will require more wood if it plans to make more furniture because wood is raw material for furniture and hence it will keep changing depending on the production.
- Direct Labor – Many companies employ labor on per hour basis or per unit basis and as the production requirements change they increase or decrease the labor accordingly, so for example if a company which is into cloth manufacturing and suppose the cloth requirement increases then it will have to employ more labor resulting in increase in direct labor expense.
- Delivery and commission Expense – If a product is not sold then company won’t have to pay for delivery as well commission to its salesperson and hence they are considered as variable cost for the firm.
Apart from above many other expenses can be included depending on the industry because the same cost can be variable for one industry and fixed for other industry.