What is meant by variable cost?

Variable cost refers to those costs which vary in amount with changes in the level of output or activity. Such costs increase and decrease in the same proportion in which the level of output increases or decreases.

Key characteristics:

• Variable costs vary in total amount but remain constant per unit of production.
• There is a linear relationship between volume of production and total variable cost.
• They are activity-based and are controllable in the short run.

For example, when the level of output rises from 5,000 to 6,000 units, the variable cost may rise from ₹25,000 to ₹30,000, but the variable cost per unit remains the same at ₹5. Sugarcane used to produce sugar, raw materials, power and fuel are common examples of variable costs.