Variable cost

Variable cost are expenses that change in proportion to the activity of a business - they are the sum of all marginal costs. Such costs are considered unit-level costs, as they vary with the number of units produced. Variable costs can be mistaken with Direct Costs - costs associated with a specific cost object. Variable costs are a component of the familiar economic equation of Total Cost:

Fixed Cost + Variable cost = Total Cost

Variable cost are often seen in the form of utilities - a company will pay for a base of electricity, gas, water, etc. but will then pay additional variable fees, depending on how much extra of any one given utility used. On the other hand, taxation usually varies with profit, which changes with sales volume - however it is not considered a variable cost.