What is Variable Cost?
According to the economics, variable cost itself says the cost is in variable nature which means not constant and changed depending upon the volume of the output of the business. Variable cost always rises with increase in the production and cost decreases with the fall in the production or output of the business. Variable cost incurred for production of total goods is called as total variable cost. Owners of the business always keep focus variable cost and tries to minimize it cost as they cannot minimize the fixed cost so as to take more profits.
Below are the few examples of variable cost in the business.
Examples: Raw materials, power, fuel, machinery maintenance, service charges, stationary, and labour (wages). These costs / overheads are incurred only when production begins and incurred proportionate to the production volume. Hence there will be no variable costs when the productivity is zero.
Total variable Cost schedule table
If you observe the total variable cost schedule table, one can easily understand concept of variable cost.
When there are zero units produced (i.e. 0), there is no variable cost incurred (i.e. 0), but the variable cost incurs only when there is output or production in the business.
When the production is started with 1000 units, total variable cost incurred is 1000/- and thereupon the production is raised to 2000 units for which the total variable cost incurred is 1800/-. likewise when the output is raised to 5000, total variable cost incurred is 5000/-.
The same Total variable Cost schedule table is presented below in graphical form so as as to understand easily about this concept. Output is shown on X axis and Total variable Cost is shown on Y axis. If we observe the Total variable Cost curve, it is inclining upwards from left to right when there is increase in the output. Hence Total variable Cost is directly related to output.