Variable costs (CV) are those that vary when the level of activity of the company changes. It is the opposite of fixed costs.
Example: the cost of inputs that, when production is zero, the cost of inputs will also be zero; if production increases, the cost of inputs will also increase, and if production decreases, the cost of information will also decrease.
The unit variable costs (CVu) is the one that corresponds to a production/sale unit. For example, the cost of the raw materials used to make a pair of pants is S / 35.00 per unit.
It allows companies or businesses to have better control over accounting. Therefore, it is necessary to keep a record of expenses since they are the basis for making the company’s appropriate economic decisions internally. At the business level, variable costs use to:
The formula to calculate:
It can be proportional, progressive, or regressive.
Those costs are strictly linear to the activity. These vary according to the volume of what produce.
Example: materials needed to produce a particular product.
Those costs vary in proportion to what they produce.
Example: labor; the more they produce, the more hours employees pay.
Those inverse costs at the production level. The more production, the less price.
Example: purchase of materials in a wholesale way, with a quantity discount.
Here are some examples:
Manpower: the more demand there is in a company, the more personnel it will need.
Materials: The more demand for a product, the more raw material will need.
Selective taxes: Taxes on luxury items, alcoholic beverages, or banking services.
Product packaging: Your cost will depend on the amount of product that sells.
Commissions on sales: The employee’s salary depends directly on the number of sales he makes.
The characteristics of the variable cost are:
It can help check the financial results by offering accurate information on the business’s behavior.
If production activity increases, this type of expense will also increase, and, vice versa, if it decreases or falls, the variable cost will respond similarly.
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