Variable cost

Variable costs are the costs of a business that change depending on the quantity of products or services produced and sold.

Every business has fixed (permanent) and variable costs. Variable costs are those whose size depends on how much of the product or service the company produces and sells. Typical variable costs are raw material costs, from which we order according to how many products we expect to be able to sell or how many orders we already have. 

In the long term, of course, all cost change, if our order volume jumps, we have to hire new people, if there are many more orders, then over time the company will also outgrow the property in which it operates. Despite this, the labour cost and overhead they are usually classified as fixed costs because they do not change in the short term. 

There are goods that are fixed costs for one company, but for another it is appropriate to consider them as variable costs. In most companies, the electricity cost is a constant cost, because it changes roughly the same every month, but in the case of a bakery, the electricity bill is part of the variable costs, since most of the electricity there goes to heating the ovens, and it largely depends on how much bread needs to be baked. 

A business your financial plan fixed and variable costs must always be separated when preparing, because they behave differently when we want to determine the company size and sales potential necessary for profitable operation. With higher sales, the fixed cost per product decreases, that is, with the same selling price, efficiency improves. 

However, the variable cost per product can also change depending on how many products we produce. It is clear that if we order a lot of something, we will probably get it from the supplier at a better price than if we only ask him for a few pieces. That is why a business would be a mistake economies of scale to be judged solely on the basis of specific fixed costs.