Certified Professional Contract Manager (CPCM) 2025 – 400 Free Practice Questions to Pass the Exam

A variable cost is defined as a cost that fluctuates with production levels. This means that as the volume of goods or services produced changes, the total variable costs will increase or decrease correspondingly. For example, costs such as raw materials, direct labor, and utilities used in production are considered variable costs because they rise with increased production and decrease when production levels are lower.

In contrast, costs that remain constant regardless of output are classified as fixed costs. These costs do not change with the level of production and remain steady over a certain range of production activity. Fixed expenses are typically associated with overheads that are incurred even when production is zero.

Additionally, while the cost of raw materials may often be classified as a variable cost, the definition of a variable cost is broader and encompasses any cost that varies with the level of production, not just the cost of inputs. Therefore, the distinction that a variable cost is related to production levels is crucial in understanding its definition.