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Variable Costs
Business
WHAT IS IT?
Variable costs are costs that change with the level of sales or activity.
IN PLAIN ENGLISH
The more you sell or produce, the more these costs may increase.
SIMPLE EXAMPLE
If each meal costs £5 in direct food and drink costs, selling 100 more meals would generally add more direct cost.
WHY DOES IT MATTER
Understanding variable costs helps you calculate contribution and break-even.
THE ROCKET TEST
Variable costs tend to move with sales or activity.
SEE IT IN ACTION
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