Variable Costs

Variable costs are expenses that change based on the level of goods or services produced by a business. For example, if you produce more items, your costs for materials, labor, and utilities will increase. In cost-benefit analysis, variable costs are important because they help assess the financial impact of decisions. Understanding these costs allows businesses to evaluate whether the benefits of a project or investment outweigh the expenses, especially as production scales up or down. Essentially, they vary with production levels, making them crucial for effective financial planning and decision-making.