Variable cost
A variable cost changes in total with the relevant activity level. A linear variable-cost model assumes a constant cost per unit within the relevant range, so total cost equals units of activity multiplied by the unit rate. Actual rates can change through discounts, inefficiency or price movements, so identify the assumptions. A variable cost may be direct or indirect and may relate to production or selling.
Worked example
Direct materials cost $4 per unit on a constant-rate assumption. Producing 500 units costs $2,000; producing 800 costs $3,200.
Common mistake
Variable means proportional only under the specified linear model. Not every variable cost is relevant to a decision if the same total occurs in all alternatives.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |