What is Variable Cost?
A variable cost is an expense that rises and falls with the amount sold or produced, such as the cost of goods, packaging or delivery.
Updated
Meaning
English
A variable cost is an expense that rises and falls with the amount sold or produced, such as the cost of goods, packaging or delivery.
Roman Urdu
Variable cost woh Expense hai jo Sale ke saath badhta aur ghatta hai, jaise maal ki Cost, packing ya delivery.
Also called direct cost, cost per unit.
Example
A bakery uses flour, sugar and boxes for each cake. If it bakes twice as many cakes, those costs roughly double.
Using it in pricing
Selling price minus variable cost is the contribution each sale makes toward your fixed costs. If the price barely covers variable cost, no volume will save the business. Track the cost of each item so the margin is real. See fixed cost and COGS.
In Nafaa
Nafaa stores a cost for each product and shows profit by item. Restaurants and bakeries can also use recipe costing. See reports.
Related terms
- Fixed Cost
A fixed cost is an expense that stays about the same each month whatever the amount sold, such as shop rent or a salaried employee.
- COGS (Cost of Goods Sold)
Cost of goods sold is the purchase cost of the items a business actually sold in a period, which is subtracted from sales to find gross profit.
- Recipe Costing
Recipe costing works out the cost of one portion or batch of a dish by adding up the cost of every ingredient in the quantity the recipe uses.