# Variable costs

Also known as: employment-dependent costs, quantity-dependent costs, performance costs

The term variable costs describes the costs that are dependent on the quantity of product produced and change depending on the number of items produced.

## Definition / explanation

In a business cost calculation, variable costs are the factors that are dependent on the amount of product produced and that change according to the number of items produced.

The more is produced, the more the variable total costs (raw materials, production materials, freight costs and costs for external services) increase. Variable costs are also important when calculating prices in the service sector.

## Variable costs as a calculation factor

When calculating prices, it is important that every cost factor is taken into account in the cost calculation. Only if the price covers the costs incurred by the product (so-called contribution margin), profit can be made. Therefore, the business pricing In particular, the factors of fixed costs and variable costs are decisive calculation factors.

## Price calculation with fixed costs and variable costs

Whether these are fixed or variable costs depends on the employment dependency on the quantity produced.

For example, if more of a product is produced, the company's so-called level of employment changes. Among other things, more material is required and production time increases. These varying values influence the cost calculation - the variable total costs change according to the product quantity.

Fixkosten hingegen sind feststehende Faktoren wie Strom, Löhne und Gehälter sowie acquisition cost für die Produktionsmaschinen. Diese ändern sich nicht und fließen immer direkt in die Kalkulation.

## Variable unit costs influence variable costs

While variable costs take into account all variable cost factors that arise during a certain period of time, the variable ones take into account Unit cost only those Manufacturing costs for a single piece (so-called unit cost development).

If production increases, the need for materials and aids increases, which paves the way for better purchasing conditions. Thus, each piece can be manufactured more cheaply and sold more cheaply. If, on the other hand, production is reduced, the variable costs increase proportionally and the product becomes more expensive.

## Summary

• Variable costs are production costs that change in proportion to the amount produced
• Variable costs cover all variable cost factors of a production
• if production is reduced, the variable costs usually increase
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