Variable Cost
Short definition
A variable cost moves with volume in the relevant range. Materials, piece-rate labour and turnover commissions are typical; semi-variable items (energy, logistics) break a linear DOL assumption.
Detailed explanation
Unit variable cost sets contribution and the price floor. Commodities and FX turn a “variable” line into a shock variable; then a scenario beats an average unit cost.
Inventory costing (FIFO, average) splits P&L variable cost from cash purchases. A take-or-pay contract pulls a variable-looking line back toward fixed.
Why it matters for the CFO
If price, discount and mix cannot stay above unit variable cost, contribution is negative and more volume enlarges the loss.
How to read it
Variable cost / sales is the other face of operating leverage. FX and commodity shocks move the ratio; last year’s average is not next year’s unit cost.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.