variable costs


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Related to variable costs: direct costs, Semi Variable Costs

Variable Cost

A cost to a person or business that varies over time according to a number of factors. For example, a dental office must buy dental supplies, which usually cost about the same. This is a fixed cost. On the other hand, the dental office must also pay the electric and gas and water bills, which may fluctuate considerably. This is a variable cost.

variable costs

any COSTS that tend to vary directly with the level of output. They represent payments made for the use of variable factor-inputs, notably raw materials and direct labour.

A firm will leave a market if in the short run it cannot earn sufficient SALES REVENUE to cover its total variable cost. If it can generate enough total revenue to cover total variable cost and make some CONTRIBUTION towards total FIXED COST then it will continue to produce in the short run even though it is still making a loss.

Variable costsclick for a larger image
Fig. 195 Variable costs.

variable costs

any COSTS that tend to vary directly with the level of output. They represent payments made for the use of VARIABLE FACTOR INPUTS (raw materials, labour, etc.).

The SHORT-RUN total variable cost curve (TC) in Fig. 195 (a) has an S shape because at low levels of output total variable costs rise slowly (because of the influence of increasing RETURNS TO THE VARIABLE FACTOR INPUTS), while at high levels of output total variable costs rise more rapidly (because of the influence of DIMINISHING RETURNS to the variable input). Average variable costs (AVC in Fig%. 195) fall at first (reflecting increasing returns to the variable input), but then rise (reflecting diminishing returns to the variable input).

In the THEORY OF MARKETS, a firm will leave a market if in the short run it cannot earn sufficient TOTAL REVENUE to cover its total variable cost. If it can generate enough total revenue to cover total variable cost and make some CONTRIBUTION towards total FIXED COST, then it will continue to produce in the short run even though it is still making a loss. See also MARKET EXIT, LOSS MINIMIZATION.

References in periodicals archive ?
In simple terms, the difference in the nature of a fixed or variable cost is whether or not I have a choice in consumption.
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After all, it can be accomplished with just three data elements: Actual or Projected Sales, Total Fixed Costs, and Total Variable Costs.
These variables include management-determined choices--operating fixed cost and output levels; market determined parameters--price in a competitive market as time passes; and economic and engineering relationships--unit variable costs, given operating fixed cost increases due to new capital integration.
Their compensation was not included in variable costs, but it more than offset the contribution margin provided by the additional volume.
Keeping marginal firms from earning revenues in excess of their average variable costs would encourage present suppliers to leave the market and discourage entry needed to provide power during peak hours of use.
Variable costs increase or decrease in direct proportion to changes in the level of activity that produce the cost.
Transforming fixed costs into variable costs has long been one of the key objectives of IT outsourcing, and utility computing promises to provide a more granular and flexible way to achieve that end, notes Bill Martorelli, vice president, enterprise services strategies, at the Hurwitz Group, an information technology industry research and consulting firm.
Assuming such services are not outsourced, the more services offered, the more labor costs will vary, and these variable costs usually comprise more than 80% of the organization's budget.
The profit improvement algorithm is used to evaluate each railroad's ability to raise prices above variable costs.
88 combined with an increase in variable costs (v) of 12.
This change helped us save about $678,000 a year in variable costs.