Variable Costs
Business expenses that rise and fall directly with sales or production volume, such as materials, shipping, and sales commissions.
Unlike fixed costs, variable costs scale up or down with activity level, more sales generally means more variable cost, and fewer sales means less, which makes them naturally more flexible than fixed obligations during a slow period.
Understanding the split between fixed and variable costs helps a business judge how a revenue dip would actually affect its bottom line and its ability to cover fixed obligations like a loan payment.
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