Variable cost

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Cost and management accounting.

A variable cost is a cost which increases as the level of production (or other activity) increases, because it is incurred as a consequence of the production or other activity.

Contrasted with a fixed cost.

Variable costs are generally easier to change - especially to reduce - when necessary, compared with fixed costs.

Therefore a lower-risk operational strategy is normally to have a lower proportion of fixed costs in the total cost structure, and a higher proportion of variable costs.

This proportion is sometimes known as operational gearing.

See also