Variable Cost
- Tags
- finance
Costs that vary according to the volume of activity. Contrastingly fixed costs are costs that aren't variable. Producing one more product won't alter these costs.
For example in a restaurant the:
| Cost | Type | Description |
|---|---|---|
| Managers Salary | Fixed | Regardless of demand, this will remain the same. |
| Price of Ingredients | Variable | More customers, more food needs to be bought. |
You can [see page 14, example] the relation between total cost, total variable cost and total fixed cost.
*Note*: In practice, in the short term, it is financially viable to price a product just
to cover variable costs.Semi-Variable costs
Contain both variable and fixed costs. Example phone messaging service. You pay a fixed amount per month + a little more if you go over your limits.
Semi-Fixed Costs
Cost that remains fixed within certain levels for a given period of time. But then increases or decreases by a constant amount at critical levels.
AKA. Step-fixed costs.