Variable Cost

Variable costs are business expenses that fluctuate in direct proportion to the volume of goods or services produced. Unlike fixed costs, which remain constant regardless of production levels, variable costs increase as production rises and decrease when production falls. They are essential for calculating the cost of production and determining profitability at different output levels.

Example: A bakery produces cakes. The cost of flour, sugar, and eggs increases with the number of cakes baked. If producing 100 cakes costs ₹5,000 for ingredients, producing 200 cakes would cost ₹10,000. These ingredient costs are variable costs because they change with production volume.