What is a Variable Cost? Definition or Meaning

The volume or quantity of product a company produces varies with demand, as you know. The costs associated with producing the product therefore also varies, thus giving rise to the measurable Variable Costs. Costs such as material or labour costs are part of Variable Costs.

For example…

Let’s take the case of luxury shampoo manufacturer DreamHair. As they have positioned themselves in the luxury market, they used to present the shampoo in extravagant packaging, making their manufacturing costs quite high. As the product gained in popularity, so did the variable costs associated with manufacturing it. However, an environmental pledge DreamHair has recently taken has meant that they have slashed their variable costs in half due to simpler packaging when comparing with the same market demand. Now that’s a WIN-WIN all around!