Variable Cost

Variable costs are the opposite of fixed costs. These are the expenses that change depending on how much stuff you produce or how many services you provide. Unlike fixed costs, which stay the same no matter what, variable costs go up or down with your level of production. 

For example, if you run a bakery, the cost of ingredients like flour and sugar is a variable cost. If you bake more cakes, you need more flour and sugar, so your costs go up. But if you’re baking fewer cakes, you’re buying less flour and sugar, and your costs go down. Essentially, variable costs fluctuate with your production levels, making them key to managing your budget and figuring out your overall expenses.