Costs that vary proportionally with the level of production or sales.
Variable costs are expenses that change in direct proportion to the level of production or sales volume of a small business. Unlike fixed costs that remain constant regardless of output, variable costs fluctuate based on the quantity of goods or services produced. These costs are typically associated with raw materials, direct labor, and variable overhead expenses. Small business owners should carefully monitor and manage variable costs to understand their impact on profitability and make informed decisions regarding pricing, production levels, and cost control strategies. Analyzing and optimizing variable costs can help enhance operational efficiency and maximize the business's financial performance.