Product Suite

Supply Chain Glossary - V

Supply Chain Glossary - V

variable cost

An operating cost that varies directly with a change of one unit in the production volume, e.g., direct materials consumed, sales commissions.

An inventory valuation method in which only variable production costs are applied to the product; fixed factory overhead is not assigned to the product. Traditionally, variable production costs are direct labor, direct material, and variable overhead costs. Variable costing can be helpful for internal management analysis but is not widely accepted for external financial reporting. For inventory order quantity purposes, however, the unit costs must include both the variable and allocated fixed costs to be compatible with the other terms in the order quantity formula. For make-or-buy decisions, variable costing should be used rather than full absorption costing. Syn: direct costing.

Test Country