Variable Costs

Accounting Dictionary

Variable Costs

Variable costs increase with each unit of inventory manufactured.

Let’s say it takes $10 in wood to make a wooden box. If you make one box, you’ll pay $10 in wood. If you make 1000 boxes, you’ll pay $10,000 for wood. The more boxes you make, the more you spend for wood. Wood is a variable cost. The rent is $5000 a month. If you make one box or 10,000 boxes the rent is still the same. It never changes; it is fixed.

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